Study Guide No. 5

Question 1

Relates to the exercise of oversight, control and authority.
Provides oversight to uncover and address mistakes, risks, and misconduct.
Provides mechanisms for identifying risks and planning for recovery when mistakes or problems occur.

Answer 1

Governance

Question 2

A clear delineation of power and accountability helps stakeholders understand why and how the organization chooses and achieves its goals.

Answer 2

True

Question 3

As the formal system of oversight, accountability, and control for organizational decisions and resources.
Part of a firm’s corporate culture that establishes the integrity of all relationships.

Answer 3

Corporate governance

Question 4

Relates to how well the content of workplace decisions is aligned with a firm’s stated strategic direction.
Refers to the state of being responsible for something or obligated to answer to someone.
Way of measuring how well the decisions made in the workplace match the goals and vision of the firm.

Answer 4

Accountability

Question 4

Relates to a system of checks and balances that limit employee’s and managers’ opportunities to deviate from policies and codes of conduct.
Refers to the act or duty of overseeing or supervising something. It involves watchful and responsible care, ensuring that errors or omissions are avoided through careful examination and management.
Way of making sure that employees and managers follow the rules and behave properly.

Answer 4

Oversight

Question 5

Involves the process of auditing and improving organizational decisions and actions.
Way of checking and improving the quality and effectiveness of the decisions and actions taken in the organization.

Answer 5

Control

Question 6

Principles of Corporate Governance

Answer 6

Transparency
Accountability
Fairness
Independence

Question 7

The purpose of business is to maximize profits for shareholders.

Answer 7

True

Question 8

Places the board of directors in the central position to balance the interests and conflicts of the various
constituencies.

Answer 8

Stakeholder model

Question 9

Are persons placed in positions of trust who use due care and loyalty in acting on behalf, of the best interests of the organization.

Answer 9

Fiduciaries

Question 10

To make informed and prudent decisions.

Answer 10

Duty of diligence

Question 11

means that all decisions should be in the interests of the corporation and its stakeholders.

Answer 11

Duty of loyalty

Question 12

Conflicts of interest exist when a director uses the position to obtain personal gain, usually at the expense of the organization.

Answer 12

True

Question 13

Effective corporate governance creates compliance and values so that employees feel that integrity is at the core of competitiveness.

Answer 13

True

Question 14

Involves a system of checks and balances, a concept associated with the distribution of power within the executive, judiciary, and legislative branches of the U.S.
government.

Answer 14

Governance

Question 15

In the late 1800s and early 1900s, corporations were headed by such familiar names as Carnegie, DuPont, and Rockefeller. These “captains of industry” had ownership investment and managerial control over their businesses. Thus, there was less reason to talk about corporate governance because the owner of the firm was the same individual who made strategic decisions about the business.

Answer 15

True

Question 16

By the 1930s, corporate ownership was dispersed across a large number of individuals.

Answer 16

True

Question 17

In 1932, a stockholder in New York’s Consolidated Gas Company, found his questions repeatedly ignored at the firm’s annual shareholders’ meeting. He and his brother took the problem to the federal government and pushed for reform, which led the creation of the U.S. Securities and Exchange Commission (SEC).

Answer 17

Lewis Gilbert

Question 18

Requires corporations to allow shareholder resolutions to be brought to a vote of all stockholders.

Answer 18

U.S. Securities and Exchange Commission (SEC)

Question 19

Owners are ‘principals” who hire “agents” the executives, to run the business.

Answer 19

True

Question 20

The U.S. financial system collapsed in late 2008. The cause was pervasive use of instruments like credit default swaps, risky debt like subprime lending, and corruption in major corporations. The government was forced to step in and system and reduced consumption, the government also had to step in to help major automotive companies GM and Chryler. The U.S. government is now a majority shareholder in GM, an unprecedented move.

Answer 20

True

Question 21

Always involves trade-offs, and most businesses have yet to formulate an idea of what social responsibility really entails for their organization.

Answer 21

Corporate social responsibility

Question 22

Social responsibility should seek to help a firm’s principle stakeholders.

Answer 22

True

Question 23

A company can consider itself socially responsible if it generates returns for shareholders and provides jobs for employees.

Answer 23

True

Question 24

Is founded in classic economic precepts, including the
maximization of wealth for investors and owners.

Answer 24

The shareholder model of corporate governance

Question 25

The purpose of business is conceived in a broader fashion. Although a company has a responsibility for economic success and viability, it must also answer to other parties, including employees, suppliers, government agencies, communities, and groups with which it interacts.
This model presumes a collaborate and relational approach to business and its constituents.

Answer 25

The stakeholder model of corporate governance

Question 26

In the social responsibility model that we propose, governance is the organizing dimensions for keeping a firm focused on continuous improvement, accountability, and engagement with stakeholders.

Answer 26

True

Question 27

Assume legal responsibility for the firm’s resources and
decisions, and they appoint its top executive officers.
Have the responsibility to act for the best interest of those they serve; their membership is not designed as a vehicle for personal financial gain.
Assume the ultimate authority for organizational effectiveness and subsequent performance.

Answer 27

Board of Directors

Question 28

Characteristics found to be very helpful in looking for an effective Board of Directors namely;

Answer 28

(1) independence
(2) quality
(3) performance

Question 29

Just as social responsibility objectives require more employees and executives, boards of directors are also experiencing increasing accountability and disclosure mandates. The desire for independence is one reason that a few firms have chosen to split the powerful roles o chair of the board and CEO.

Answer 29

Independence

Question 30

Finding board members who have some expertise in the firms industry or who have served as chief executives at similar-sized organizations is a good strategy for improving the board’s overall quality.

Answer 30

Quality

Question 31

An effective board of directors can serve as a type of insurance against the business cycle and the natural highs and lows of the economy. A company with a strong board free from conflicts of interest and which clearly stated corporate governance rules will be more likely to weather a storm if something bad does happen.

Answer 31

Performance

Question 32

They expect to grow and reap rewards from their investments.

Answer 32

Shareholders and Investors

Question 33

A broad term that can encompass engaging in dialog with management, attending annual meetings, submitting shareholders resolutions, bringing lawsuits, and other mechanisms designed to communicate shareholder interest to the corporation.

Answer 33

Activism

Question 34

Investors today use similar screening criteria in determining where to place their funds and resources.
Another concept is the investors’ confidence. Shareholders and other investors must have assurance that their money is being placed in the care of capable and trustworthy organizations.

Answer 34

True

Question 35

Controls and a strong risk management system are fundamental to effective operations, as they allow
for comparisons between the actual performance and the planned performance and goals of the organization.
Internal and external audits are essential to the firms control measures.

Answer 35

Internal Control and Risk Management

Question 36

Always present within organizations, so executives must develop processes for remedying or managing its effects.

Answer 36

Risk

Question 37

Risk can be categorized as;

Answer 37

(1) A hazard, which in case risk management focuses on minimizing negative situations such as fraud, injury or financial loss
(2) An uncertainty that needs to be hedged through quantitative plans and models
(3) An opportunity for innovation and entrepreneurship

Question 38

How executives are compensated for their leadership, organizational service and performance has become an
extremely troublesome topic.

Answer 38

Executive Compensation

Question 39

A lack of good governance can lead to insular and
selfish motives because there is no effective system of checks and balances.

Answer 39

True

Question 40

Because governance is the control and accountability process for achieving social responsibility, it is important to consider who should be involved in the future.

Answer 40

1. Business leaders and managers will need to embrace governance as an essential part of effective performance.
2. Governments have a key role to play in corporate governance.
3. Other stakeholders may become more willing to use governance mechanisms to influence corporate strategy or decision making.

Question 41

An activist money manager and leader on corporate governance issues, wrote that effective corporate governance requires understanding that the “indispensable link between the corporate constituents is the creation of a credible structure that enables people with overlapping, but not entirely congruent interests to have a sufficient level of confidence in each other and the viability of the enterprise as a whole.

Answer 41

Robert Monks