MGST 451 FINAL EXAM 160 QUESTIONS WITH
VERIFIED ANSWERS
- the collection of control mechanisms that an organization follows and adopts to
prevent or dissuade potentially self-interested managers from engaging in
activities detrimental to the welfare of shareholders and stakeholders
(Corporations in Canada).
- 4 mechanisms: laws, rules, guidelines and policies - CORRECT ANSWER What is
corporate governance?
- Lawyers: a corporation is a legal business structure that establishes the business
as being a separate entity from the owners.
- Economists: a corporation is a bundle of contracts.
- Corporation: a mechanism established to allow different parties to contribute
capital, expertise and labor for their mutual benefit - CORRECT ANSWER 3
definitions of a corporation:
- Principal/Shareholders: firm owners, hires, monitors, compensates, increase
value of firm
- Agent/Managers: decision makers, performs work, provides time and talents,
owns utilities (nice offices, luxury car, office building)
- Principle Agent Problem: situation in which an agent performing activities on
behalf of a principal pursues his or her own interests - CORRECT ANSWER Principle
vs Agent (3):
The value forgone due to imperfect optimal monitoring
,- Adverse Selection: Increases the likelihood of selecting inferior alternatives
- Moral Hazard: Increases the incentive of one party to take undue risks or shirk
other responsibilities. the costs incur to the another party - CORRECT ANSWER
Agency costs:
- George Adrian Cadbury, was a UK director, result of several high profile company
collapses.
- titled Financial Aspects of Corporate Governance, is a report that sets out
recommendations on the arrangement of company boards and accounting
systems to lessen corporate governance risks and failures.
- The report's recommendations have been adopted in varying degree by the
European Union, the United States, the World Bank, and others. - CORRECT
ANSWER The Cadbury Report (1992):
- Accountability: management to board and board to shareholders.
- Fairness: protect rights of shareholders
- Transparency: timely, accurate disclosure of all matters
- Independence: free from influence of others. - CORRECT ANSWER Principals of
Corporate Governance (4):
- that the board of directors specify, in writing, a purpose for the corporation that
is "rooted in the fundamental value proposition of the corporation". - CORRECT
ANSWER Corporate purpose of Dey-Kaplan:
- Stakeholder Identification: relevant stakeholders in their corporation.
- Best Interests: fiduciary duty to the corporation.
,- Stakeholder Committee: responsible for identifying, analyzing, overseeing and
reporting stakeholder interests.
- Stakeholder Impact Assessments: integrate reporting on stakeholder impacts
into their annual reports. - CORRECT ANSWER Dey-Kaplan:
identification/consideration of stakeholder interests (4):
- Indigenous Peoples: maintain a corporation's relationship with Indigenous
peoples.
- Climate Change: any board that is not actively overseeing the threats and
opportunities associated with climate change will be remiss in its duty of loyalty.
- Corporate Activism: take stances on political and social issues, led by CEO -
CORRECT ANSWER Dey-Kaplan: Overarching Interests/Risks (3):
- Diversity: at the board and senior management level
- Board Renewal: rigorous board evaluation process can help ensure board
renewal occurs on a regular basis.
- Executive Compensation: should be tied to the realization of the corporation's
purpose and long-term sustainability. - CORRECT ANSWER Dey-Kaplan:
Governance and Disclosure Guidelines (3):
- Monitor
- Hire, evaluate and compensate the CEO
- Approve major operating proposals and financial decisions
- Make sure the firm's activities and financial condition are accurately reported to
its stakeholders
- Offer expert advice to management
, - Merger and acquisitions, and other transactions - CORRECT ANSWER What do
Boards do (4)?
- Leader of the board, provides agenda/work plan, presides over board meetings
- Ensures the board works effectively and practices and procedures are in place
- Is a principal link between board and CEO/management team,
board/investors/stakeholders
- Involved in selection and induction of new directors - CORRECT ANSWER
Chairman
- Clearer separation of responsibility
- Clear authority to one director
- Give ceos time to focus completely on the strategy
- Good when company has new ceo - CORRECT ANSWER Chair/ceo separation
advantages (4):
- Artificial separation
- Make recruiting a new ceo difficult
- Create duplication of leadership
- Lead to inefficient decision making... especially in turbulent industries - CORRECT
ANSWER Chair/ceo separation disadvantages (4):
- The lead independent director is a compromise when the CEO also chair the
board
- Sometime communicate with shareholders
VERIFIED ANSWERS
- the collection of control mechanisms that an organization follows and adopts to
prevent or dissuade potentially self-interested managers from engaging in
activities detrimental to the welfare of shareholders and stakeholders
(Corporations in Canada).
- 4 mechanisms: laws, rules, guidelines and policies - CORRECT ANSWER What is
corporate governance?
- Lawyers: a corporation is a legal business structure that establishes the business
as being a separate entity from the owners.
- Economists: a corporation is a bundle of contracts.
- Corporation: a mechanism established to allow different parties to contribute
capital, expertise and labor for their mutual benefit - CORRECT ANSWER 3
definitions of a corporation:
- Principal/Shareholders: firm owners, hires, monitors, compensates, increase
value of firm
- Agent/Managers: decision makers, performs work, provides time and talents,
owns utilities (nice offices, luxury car, office building)
- Principle Agent Problem: situation in which an agent performing activities on
behalf of a principal pursues his or her own interests - CORRECT ANSWER Principle
vs Agent (3):
The value forgone due to imperfect optimal monitoring
,- Adverse Selection: Increases the likelihood of selecting inferior alternatives
- Moral Hazard: Increases the incentive of one party to take undue risks or shirk
other responsibilities. the costs incur to the another party - CORRECT ANSWER
Agency costs:
- George Adrian Cadbury, was a UK director, result of several high profile company
collapses.
- titled Financial Aspects of Corporate Governance, is a report that sets out
recommendations on the arrangement of company boards and accounting
systems to lessen corporate governance risks and failures.
- The report's recommendations have been adopted in varying degree by the
European Union, the United States, the World Bank, and others. - CORRECT
ANSWER The Cadbury Report (1992):
- Accountability: management to board and board to shareholders.
- Fairness: protect rights of shareholders
- Transparency: timely, accurate disclosure of all matters
- Independence: free from influence of others. - CORRECT ANSWER Principals of
Corporate Governance (4):
- that the board of directors specify, in writing, a purpose for the corporation that
is "rooted in the fundamental value proposition of the corporation". - CORRECT
ANSWER Corporate purpose of Dey-Kaplan:
- Stakeholder Identification: relevant stakeholders in their corporation.
- Best Interests: fiduciary duty to the corporation.
,- Stakeholder Committee: responsible for identifying, analyzing, overseeing and
reporting stakeholder interests.
- Stakeholder Impact Assessments: integrate reporting on stakeholder impacts
into their annual reports. - CORRECT ANSWER Dey-Kaplan:
identification/consideration of stakeholder interests (4):
- Indigenous Peoples: maintain a corporation's relationship with Indigenous
peoples.
- Climate Change: any board that is not actively overseeing the threats and
opportunities associated with climate change will be remiss in its duty of loyalty.
- Corporate Activism: take stances on political and social issues, led by CEO -
CORRECT ANSWER Dey-Kaplan: Overarching Interests/Risks (3):
- Diversity: at the board and senior management level
- Board Renewal: rigorous board evaluation process can help ensure board
renewal occurs on a regular basis.
- Executive Compensation: should be tied to the realization of the corporation's
purpose and long-term sustainability. - CORRECT ANSWER Dey-Kaplan:
Governance and Disclosure Guidelines (3):
- Monitor
- Hire, evaluate and compensate the CEO
- Approve major operating proposals and financial decisions
- Make sure the firm's activities and financial condition are accurately reported to
its stakeholders
- Offer expert advice to management
, - Merger and acquisitions, and other transactions - CORRECT ANSWER What do
Boards do (4)?
- Leader of the board, provides agenda/work plan, presides over board meetings
- Ensures the board works effectively and practices and procedures are in place
- Is a principal link between board and CEO/management team,
board/investors/stakeholders
- Involved in selection and induction of new directors - CORRECT ANSWER
Chairman
- Clearer separation of responsibility
- Clear authority to one director
- Give ceos time to focus completely on the strategy
- Good when company has new ceo - CORRECT ANSWER Chair/ceo separation
advantages (4):
- Artificial separation
- Make recruiting a new ceo difficult
- Create duplication of leadership
- Lead to inefficient decision making... especially in turbulent industries - CORRECT
ANSWER Chair/ceo separation disadvantages (4):
- The lead independent director is a compromise when the CEO also chair the
board
- Sometime communicate with shareholders
