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Corporate Governance > Sample Paper Knowledge > Flashcards

Sample Paper Knowledge Flashcards

1
Q

What is corporate governance convergence?

A

The theory that disparate systems across the globe may gradually evolve to adopt similar practices and standards due to globalization and cross-border investment flows.

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2
Q

What are the two lenses through which corporate governance convergence can be theorized?

A
  • De jure (legal) convergence
  • De facto (practical) convergence
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3
Q

What is a one-tier board system?

A

A board structure featuring a single board of directors comprising both executive and non-executive directors, predominant in the UK and US.

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4
Q

What is a two-tier board system?

A

A board structure that separates the management board from the supervisory board, common in Germany and the Netherlands.

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5
Q

What is the primary characteristic of the U.S. corporate governance model?

A

A strong emphasis on shareholder value, rigorous disclosure requirements, and CEO-centric leadership models.

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6
Q

What legislation emphasized transparency and accountability in U.S. corporate governance after financial scandals?

A

The Sarbanes-Oxley Act.

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7
Q

What is Germany’s Codetermination law?

A

A law that includes employee representation on supervisory boards, reflecting the two-tier board system.

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8
Q

How has Japan’s corporate governance evolved?

A

Japan has moved towards greater transparency and the inclusion of independent directors, influenced by global standards.

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9
Q

What is the significance of adopting IFRS in corporate governance?

A

It standardizes financial reporting across borders, enhancing transparency and comparability.

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10
Q

What role do institutional investors play in corporate governance?

A

They advocate for governance practices that align with global best practices, prioritizing shareholder interests.

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11
Q

What are some cultural and institutional resistances to corporate governance convergence?

A

Local governance traditions and differing economic and political contexts.

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12
Q

What is agency theory?

A

A theory positing a conflict of interest between shareholders (owners) and executives (agents) in corporate governance.

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13
Q

How does stewardship theory differ from agency theory?

A

Stewardship theory assumes executives are committed to the organization’s success and do not inherently pursue self-interest.

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14
Q

What is stakeholder theory in the context of executive remuneration?

A

A theory that extends the responsibility of executives to a broader group of interests, promoting sustainable business practices.

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15
Q

What is the principle of transparency in executive compensation?

A

Executive compensation packages should be clearly and transparently reported in company disclosures.

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16
Q

What does accountability in executive pay structures entail?

A

Including mechanisms like clawback provisions and benchmarks that align pay with performance.

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17
Q

What is the significance of proportionality and fairness in executive remuneration?

A

Compensation should be proportional to the responsibilities and performance of executives, avoiding unjust enrichment.

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18
Q

What does the concept of shareholder value refer to?

A

The value delivered to shareholders due to management’s ability to grow earnings, dividends, and share price.

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19
Q

What are agency costs?

A

Costs incurred to prevent agents from acting in their own interests over those of the principals.

20
Q

What are some alignment mechanisms suggested by agency theory?

A
  • Performance-based compensation
  • Detailed reporting requirements
  • Rigorous oversight by the board of directors
21
Q

What is the relationship between shareholder value and corporate decisions?

A

Shareholder value influences major corporate decisions including mergers, acquisitions, and financial strategies.

22
Q

What is stewardship theory?

A

An approach suggesting that managers are stewards whose motives align with the objectives of the organization.

23
Q

What challenges might alternative theories face in replacing agency theory?

A
  • Entrenchment in legislation and practice
  • Market focus on shareholder value
  • Institutional inertia
24
Q

What is resource dependence theory?

A

A theory focusing on the board’s role in providing essential resources to the organization, including expertise and networking.

25
Q

What does institutional theory emphasize in corporate governance?

A

The influence of cultural, social, and legal norms on organizational behavior.

26
Q

What is a potential downside of broader stakeholder engagement?

A

It complicates decision-making processes and may slow down strategic decisions.

27
Q

Why is measurement and accountability a challenge in broader stakeholder engagement?

A

Benefits of stakeholder engagement are often difficult to quantify and attribute.

28
Q

What is the integral role of the board in corporate governance?

A

The board oversees corporate strategy, management, and ensures accountability to shareholders.

29
Q

What is the primary role of the board of directors?

A

To serve as the bridge between shareholders, stakeholders, and management.

30
Q

List the main functions of the board of directors.

A
  • Strategic Oversight
  • Governance and Compliance
  • Resource Allocation
  • Executive Management Oversight
31
Q

What is a unitary board?

A

A board structure consisting of both executive and non-executive directors, combining management and oversight functions.

32
Q

What is a two-tier board?

A

A system that separates the management board from the supervisory board, with distinct responsibilities for each.

33
Q

What is the function of the audit committee?

A

To monitor the integrity of financial statements, oversee internal controls, and review the effectiveness of the internal audit function.

34
Q

True or False: The compensation committee is generally composed entirely of independent directors.

A

True

35
Q

Fill in the blank: The _______ committee handles the nomination of new directors and oversees corporate governance issues.

A

[Nominations and Governance]

36
Q

What triggers reforms to board committees?

A
  • Corporate Scandals and Failures
  • Regulatory Changes
37
Q

What significant reform was mandated by the Sarbanes-Oxley Act?

A

Stricter responsibilities for Audit Committees in U.S. publicly traded companies.

38
Q

What is one major implication of enhancing the compensation committee?

A

Aligning executive compensation more closely with long-term company performance.

39
Q

What can lead to ineffective governance reforms?

A

Reactive reforms that focus on compliance rather than genuine improvement.

40
Q

What is the importance of board committees in corporate governance?

A

They handle complex subjects requiring detailed review or specialist knowledge.

41
Q

List some examples of companies and their board committees.

A
  • JPMorgan Chase - Audit Committee
  • Apple Inc. - Compensation Committee
  • Google (Alphabet Inc.) - Nominating and Governance Committee
42
Q

Fill in the blank: The board’s role remains fundamentally centered on _______ and compliance.

A

[oversight]

43
Q

What is a hybrid board?

A

A model that blends elements of both unitary and two-tier systems.

44
Q

What was a response to the Volkswagen emissions scandal?

A

Reform of its Nominating and Governance Committee to improve oversight.

45
Q

True or False: The effectiveness of board committees does not impact a company’s success.

A

False

46
Q

What is the relationship between reforms and corporate governance failures?

A

Reforms often arise in response to governance failures to enhance accountability and transparency.

Corporate Governance (10 decks)

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