Exam 10: Corporate Governance

Because of recent ineffective performance, boards of directors are experiencing increasing pressure from shareholders, lawmakers, and regulators to be more forceful in preventing managers from acting in their own interest.

The separation of the positions of CEO and chairperson of the board of directors reduces the power of the CEO over firm governance practices.

The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry.The team members are becoming concerned about the security of their jobs at Sierra Infusion.At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for:

Agricultural Chemicals, Inc., was the target of a hostile takeover six months ago.The CEO and the top executives successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm.Which of the following statements is MOST likely to be true?

Corporate governance is important to nations because:

Because top management decisions are usually complex and nonroutine, direct supervision (even by the firm's board of directors) is likely to be ineffective as a means of judging the quality of their decisions.

Scandals at companies such as Enron, WorldCom, and HealthSouth illustrate the negative effects of poor ethical behavior on a firm's efforts to satisfy stakeholders.

Research suggests that institutional activism may not have a strong direct effect on firm performance, but it may indirectly influence a targeted firm's strategic decisions, including those concerned with social issues.

In a large number of family-owned firms, ownership and managerial control are not separated.

A board composed primarily of outside directors will have better insights as to the firm's intended strategic initiatives, the reasons for the initiatives, and the outcomes expected from them than will inside directors.

All of the following are consequences of the Sarbanes-Oxley Act EXCEPT:

The implementation of the Sarbanes-Oxley Act in 2002 has been, but most believe that it has had positive results in terms of protecting the interests of shareholders as well as other stakeholders.

Compared to managers, shareholders prefer:

As globalization grows, adequate corporate governance is becoming an important requirement for doing business with foreign firms and in foreign countries.

Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT:

Critics advocate reforms to ensure that independent outside directors represent a significant majority of the total membership of the board.But outsider-dominated boards may emphasize the use of financial as opposed to strategic controls.The risk of reliance on financial controls is that they may encourage managers to make decisions to maximize their interests and reduce their employment risk.

Which of the following is NOT an internal governance mechanism?

One means that is considered to improve the effectiveness of outside directors is:

Pat and Terry are top-level managers at Descitt Corp.When LVG Enterprises made an offer to purchase Descitt, Pat and Terry felt that their jobs were in jeopardy.Now that the Descitt board has rejected the offer, Pat and Terry view this as an expression of faith in their leadership and can be confident that their positions at the firm are secure.

Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations.Which of the following statements is MOST likely to be true?