Exam 10: Corporate Governance

Foreign investors are playing a relatively minor role in the governance of firms in many countries.

The ownership of major blocks of stock by institutional investors has resulted in all of the following EXCEPT:

The CEO of Skyco, a publicly traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options.The CEO's behavior may be an indication of:

Product diversification provides two benefits to managers that do not accrue to shareholders: __________ and __________.

The three internal corporate governance mechanisms are ownership concentration, board of directors, and the market for corporate control.

Define the three internal corporate governance mechanisms and explain how each one can be used to control and monitor managerial decisions.

KorniCo.is considering possible strategies to defend against a hostile takeover.They have narrowed it down to four options.Because of pressure from shareholders, they need to adopt a strategy that is shown to have a positive effect on shareholder wealth.Based on that criterion, which of the following should they choose?

Institutional owners, despite their size, are usually unable to discipline ineffective top-level managers and cannot influence a firm's choice of strategies and overall strategic direction.

Corporate governance is the set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations.

Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to three years' salary because DictionAry has been bought in a hostile takeover by its main competitor.Ambrose received:

The repurchase of the target firm's shares of stock that were obtained by the acquiring firm at a premium in exchange for an agreement that the acquirer will no longer target the company for takeover is called:

Monitoring by shareholders is usually accomplished through:

Managers in the United States receive __________ compensation than managers in the rest of the world.

Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(n) __________ director.

Agency costs include incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals.

The board of directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm.Consequently, the board is:

Corporate governance is a means to establish and maintain harmony between parties (the firm's owners and its top-level managers) whose interests may conflict.

The New York Stock Exchange requires that the audit committee be:

One of the changes to enhance the effectiveness of the board of directors is the creation of a "lead director" role that has strong powers with regard to the board agenda and oversight of non-management board member activities.

Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many boards of directors have initiated?