44. Which of the following is not an argument against the use of golden parachutes?
a.
The covered executives are already being well paid for their work.
b.
The covered executives are given an incentive to run the company poorly.
c.
The covered executives are being rewarded for failure.
d.
The covered executives are giving themselves the golden parachutes.
45. The practice of obtaining critical information from within a company and then using that information for one’s own
financial gain is
a.
arbitrage.
b.
programmed trading.
c.
insider trading.
d.
hedging.
46. The Securities and Exchange Commission’s Regulation FD is designed to
a.
b.
c.
d.
47. Companies that elected to provide meaningful information to shareholders and securities professionals without also
informing small investors were practicing
a.
insider trading.
b.
programmed trading.
c.
selective disclosure.
d.
stair-stepping.
48. Personal liability for a corporate board member means that
a.
directors have a legal obligation to pay all debts of the corporation.
b.
directors have a legal obligation to pay all debts of the corporation if the company cannot.
c.
directors may be sued for breach of fiduciary duty.
d.
directors have a personal responsibility to the shareholders.
49. The primary purpose of the Sarbanes-Oxley Act is to
a.
provide rules regulating the relationship between CEOs and boards.
b.
limit the power of corporate boards.
c.
restrict the flow of corporate money into politics.
d.
provide better protection for investors in public companies by improving the financial reporting of those
companies.
50. Sarbanes-Oxley attempts to ensure auditor independence is by
a.
limiting the nonauditing services an auditor can provide.
b.
requiring auditing firms to rotate the auditors who work with a specific client.
c.
making it unlawful for accounting firms to provide auditing services where conflicts of interest exist.
d.
all of these.
51. Which of the following is not on the ranking of red flags that signal board problems?
a.
Company has to restate earnings
b.
Poor employee morale
c.
Poor customer satisfaction track record
d.
Stock price increases
52. A new trend in board recruiting focuses more on
a.
networking skills.
b.
experience than title.
c.
business school professors.
d.
foreign investors.
53. The board committee responsible for assessing the adequacy of internal control systems and the integrity of financial
statements is the
a.
finance committee.
b.
monetary policy committee.
c.
arbitrage committee.
d.
audit committee.
54. The principal responsibilities of the audit committee are to
a.
interview auditing firms to do the company audit.
b.
negotiate with the Internal Revenue Service in the event of a tax audit.
c.
ensure that published financial statements are not misleading.
d.
hire the Chief Financial Officer (CFO) and monitor that person’s work.
55. Which of the following is a step to board repair?
a.
Seeking outside help in identifying potential risks
b.
Increasing executive compensation
c.
Using dependent compensation consultants
d.
Reducing involvement in corporate strategy
56. The board committee that has the primary responsibility of ensuring that competent, objective directors are selected is
the
a.
qualifications committee.
b.
personnel standards committee.
c.
compensation committee.
d.
nominating committee.
57. The board’s compensation committee has responsibility for
a.
setting directors’ pay scales.
b.
making sure that all employees are paid a fair wage.
c.
evaluating executive performance and recommending terms and conditions of employment.
d.
determining what bonuses should be paid and to whom.
58. The board committee that is responsible for responding to social issues is the
a.
ethics committee.
b.
public policy committee.
c.
community interface committee.
d.
rapid response committee.
59. Boards are now being tougher on CEOs for all of the following reasons except
a.
increasing diversity on boards.
b.
competitive economic conditions.
c.
rising vigilance of outside directors.
d.
increasing power of large institutional investors.
60. Shareholder activism
a.
was started by the counter culture during the 1960s.
b.
has been around for more than sixty years.
c.
is lead by the Roman Catholic church.
d.
relies on large institutional investors to introduce most of the shareholder resolutions.
61. One of the main ways in which shareholder activists communicate their concerns to management is through
a.
the Internet.
b.
blogging.
c.
advertisements in mass media outlets.
d.
shareholder resolutions.
62. The fact that company information should be made at regular and frequent intervals and should contain information
that might affect the investment decisions of shareholders is contained in the concept of
a.
full disclosure.
b.
transparency.
c.
open door reporting.
d.
both full disclosure and transparency.
Provide a short answer to each of these questions. Be sure to fully explain your answer.
63. Describe how the separation of ownership and control came about.
64. What is the primary problem inherent in management control of the firm?
65. What is the difference between an owner and an investor?
66. Why are inside directors seen as problematic in corporate governance?
67. What are the two main issues associated with CEO pay?
68. Why is the generous nature of CEO retirement packages particularly frustrating to the public?
69. Why is insider trading illegal and considered unethical? Isn’t that exactly what financial markets are supposed to do—
reward those who make good decisions?
70. List the reasons that good candidates for corporate board positions are hard to find.
71. Why are church groups particularly visible in the shareholder activist movement?
72. Summarize the responsibilities that corporations should have toward their shareholders.
73. Forecast how society would change if business did lose its macro level of legitimacy.
74. The textbook mentions that business as a whole rarely, if ever, addresses the issue of legitimacy at the macro level.
Imagine that the Chamber of Commerce approaches you to design a campaign to assure its legitimacy with the public.
What kinds of issues would you address?
75. Should directors be held personally liable in cases of corporate misconduct?
76. Church groups are key members in the shareholder activist movement. One way that they gain access to corporate
executives is by purchasing a small amount of stock and holding it a certain length of time (state laws usually dictate how
much they need to buy and how long they need to hold it), which then allows them to introduce shareholder resolutions at
stockholder meetings. Should small investors be able to wield influence like this, which arguably goes beyond their
financial stake in the firm?
77. Discuss the role of shareholder democracy in corporate governance.
78. Explain Harry Markopolos’ opinion regarding the SEC.