Exam 28: Corporate Governance and Sarbanes-Oxley Act

According to the business judgment rule,corporate directors and officers are liable to the corporation and its shareholders for even honest mistakes of judgment.

Because of the importance of most matters considered by boards of directors,they cannot use committees in conducting their business.

Which of the following is true regarding inside directors and outside directors?

Under straight voting,each shareholder votes the number of shares he or she owns on candidates for each of the positions open for election.

Through straight (noncumulative)voting,a majority shareholder can elect the entire board of directors.

Which of the following is true?

The fiduciary duty of loyalty requires directors and officers to subordinate their personal interests to those of the corporation and its shareholders.

Jan owns eight hundred of the two thousand issued and outstanding shares of Jackalope Corporation.There are five members of the board of directors,three of whom are up for election at a shareholders' meeting.If each share of stock is entitled to one vote,what is the maximum number of votes that Jan can cast for any one of the candidates for the positions on the board under cumulative voting?

What is a derivative lawsuit?

A lawsuit brought on behalf of a corporation,but initiated by a shareholder because the board of directors and officers fail to bring it,is called a derivative suit.

A court of equity "pierces the corporate veil" when it disregards the corporate entity and holds the shareholders of a corporation personally liable for the corporation's debts and obligations.

Quarterly shareholders' meetings are held to elect directors,choose an independent auditor,and take other actions.

Which of the following is not one of the common committees found on boards of directors?

Special shareholders' meetings may be held to consider important or emergency issues,such as merger or consolidation of the corporation with one or more other corporations,the removal of directors,amendment of the articles of incorporation,or dissolution of the corporation.

Unless otherwise stated in a corporation's articles of incorporation,voting for the election of directors is by the cumulative voting method.

The preemptive right of shareholders gives a shareholder the ability to prevent the dilution of his/her percentage ownership in the corporation.

The directors and officers of a corporation must act within the authority conferred upon them by the state's corporation code,the articles of incorporation,the corporate bylaws,and the resolutions adopted by the board of directors.This duty is called the duty of ________.

Roger is a director of a major car manufacturer.This is one of the few remaining car companies yet to introduce a sport utility vehicle.Roger convinces the board to investigate forming a new division to design,build and market a sport utility vehicle.Roger convinces the board that the first sport utility vehicle that the division introduces should be the largest yet sold to the general public.The board establishes a committee to perform product research,and this committee hires a marketing consulting firm.The committee and the consulting firm both have a few reservations about such a large vehicle,but research data demonstrates that the market could most likely support it.After much discussion,the board of directors votes in favor of creating the new division,and offering the huge sport utility vehicle as its first product.The vote was "9 to 6" in favor of the plan.Shortly before this vehicle was introduced,there was a major oil supply disruption that caused the price of crude oil to nearly triple.Only a few of the new sport utility vehicles are purchased,and the company loses considerable money as a result.Discuss Roger's liability for these losses.

Shareholders,directors,and officers have equal rights in managing a corporation.

Dividends are paid at the discretion of the board of directors.