Chapter 12 Corporate Governance Answer Key
Multiple Choice Questions
1.
(p. 341)
In 1932, Adolf Berle and Gardiner Means argued that the shift in control of modern
corporations from owners to professional managers had occurred because:
2.
(p. 342)
Which of the following is not a part of the decision process under the separation of ownership
and control?
3.
(p. 346–
Directors are not likely to be liable for poor company performance when they:
4.
(p. 339)
Why might dispersed ownership of corporations not be a bad thing?
5.
(p. 344)
The two primary duties of the board of directors are:
6.
(p. 348)
Which of the following did a Senate subcommittee find regarding corporate governance at
Enron?
7.
(p. 353)
Board interlocks with other firms:
8.
(p. 354)
Which of the following is not a primary determinant of CEO compensation?
9.
(p. 344)
The duty of loyalty is defined as being loyal to the interests of:
10.
(p. 351)
Which of the following changes in governance are associated with a rise in share price?
11.
(p. 349)
Which of the following might be a benefit from Rule 404 of the Sarbanes-Oxley Act?
True / False Questions
12.
(p. 341)
Dispersed ownership of corporations might not be a bad thing because shareholders can
divest poorly performing firms.
13.
(p. 353)
Increasing the number of outsiders on a board of directors can help to turn a company
around.
14.
(p. 356)
Among the different types of CEO compensation, bonuses account for the largest variation in
compensation among CEOs.
15.
(p. 344)
Implicit in the duty of care is the director’s responsibility to remain informed about the firm’s
ongoing activities.
16.
(p. 340)
It is generally accepted that the board of directors, not managers, have the primary
responsibility for corporate governance.
17.
(p. 344)
The business judgment rule acts as a safe harbor when the duty of loyalty is being
questioned.
18.
(p. 353)
Firms always achieve higher operating performance when they add more independent
directors.
19.
(p. 350)
To adhere to Rule 404, a firm has to inspect every one of its processes that has an effect on
financial reporting.
20.
(p. 352)
Antitakeover defenses are not in the interest of shareholders.
21.
(p. 352)
Independent directors act as conduits of innovations to a firm, some potentially harmful.
Short Answer Questions
22.
(p. 341)
How do a firm’s shareholders control and monitor the managers that make the firm’s strategic
decisions?
23.
(p. 352)
If antitakeover defenses help to protect a company, its board, or its employees, why might
they be considered a bad form of corporate governance?
24.
(p. 357–
358)
Give an example of a country where government intervention and interfirm networks influence
corporate governance.