Business Ethics Now Andrew Ghillyer 5e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Corporate Governance True / False Questions 1. Management consulting is the system by which business organizations are directed and controlled. True False 2. The stakeholders of …
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Business Ethics Now Andrew Ghillyer 5e – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05
Corporate Governance
True / False Questions
| 1. | Management consulting is the system by which business organizations are directed and controlled.
True False |
| 2. | The stakeholders of a company include its customers, its vendor partners, state and local entities, and the community in which it conducts its business operations.
True False |
| 3. | Corporate transparency is concerned with how well an organization meets its obligations to its stakeholders.
True False |
| 4. | The board members of a company are not accountable to the company and its shareholders.
True False |
| 5. | Corporate governance does not impact the efficiency of financial markets.
True False |
| 6. | A board of directors is a group of individuals who oversee the governance of an organization.
True False |
| 7. | Creditors, suppliers, and professional consultants represent the inside members of a board of directors.
True False |
| 8. | Members of a board of directors are not eligible to be a part of the audit committee of an organization.
True False |
| 9. | The strategic business unit of an organization is responsible for monitoring the financial policies and procedures of the organization.
True False |
| 10. | Independent or outside directors are not eligible to be a part of the compensation committee of an organization.
True False |
| 11. | The main responsibility of the auditing committee of an organization is to set the compensation for all the employees of the organization, including its outside contractors.
True False |
| 12. | Typically, the compensation package of a CEO and other senior executives of an organization consists of a base salary and stock options but does not include any performance bonus or other perks.
True False |
| 13. | The corporate governance committee of an organization is staffed by members of the board of directors and specialists.
True False |
| 14. | The corporate governance committee of a company oversees compliance with its internal code of ethics as well as any federal and state regulations on corporate conduct.
True False |
| 15. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, dealt exclusively with external governance.
True False |
| 16. | The King Report on Corporate Governance of 1994 incorporated a code of corporate practices and conduct that looked beyond the corporation itself, taking into account its impact on the larger community.
True False |
| 17. | The King I report, established by Mervyn King in 1994, failed to recognize the involvement of all the corporation’s stakeholders in the efficient and appropriate operation of an organization.
True False |
| 18. | The King II report, released by the committee formed by Mervyn King, formally recognized the need to move the stakeholder model forward and to consider a triple bottom line instead of a single bottom line of profitability.
True False |
| 19. | The triple bottom line proposed by the King II report, released by the committee formed by Mervyn King, recognizes the economic, environmental, and social aspects of a company’s activities.
True False |
| 20. | The King II report emphasized the need for companies to adopt an exclusive approach to corporate governance instead of an inclusive one.
True False |
| 21. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, argued for a guideline of “comply or else,” which required companies to abide by a set of operating standards or face stiff financial penalties.
True False |
| 22. | The “comply or else” guideline gave companies the flexibility to comply with governance standards or explain their noncompliance in their corporate documents.
True False |
| 23. | The “comply or explain” guideline proved to be an effective deterrent to corporate financial scandals.
True False |
| 24. | The “comply or explain” methodology refers to the set of guidelines that requires companies to abide by a set of operating standards or face stiff financial penalties.
True False |
| 25. | The “comply or else” methodology is more aggressive than the “comply or explain” methodology.
True False |
| 26. | The Sarbanes-Oxley Act of 2002 incorporates the “comply or else” approach to corporate governance.
True False |
| 27. | By merging the roles of the chief executive officer and the chairperson of the board of an organization, the oversight provided by the board of directors is magnified.
True False |
| 28. | The argument in favor of merging the roles of the chairperson of the board and the chief executive officer of an organization is one of efficiency.
True False |
| 29. | By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the board is given the benefit of leadership from someone who is in touch with the inner workings of the organization.
True False |
| 30. | The board of directors of an organization can secure its independence by permitting one individual to function as both the chief executive officer of the organization and the chairperson of its board.
True False |
| 31. | By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the power of the stockholders is maximized.
True False |
| 32. | The CRAFTED principles of governance, offered by the European business school INSEAD, recommend creating a culture and climate of consistency in an organization.
True False |
| 33. | If the board of directors is to serve its purpose in setting the operational tone for an organization, it should be comprised of members who represent professional conduct in their own organizations.
True False |
| 34. | Running a small company does not require a constant evaluation of risk-versus-reward scenarios.
True False |
| 35. | In his Harvard Business Review article, Walter Salmon recommends that a good board comprises three or more outside directors for every insider.
True False |
| 36. | Ethical misconduct is possible even if a board of directors passes all the criteria established by Walter Salmon.
True False |
| 37. | The ethical conduct of a business can be influenced by the individual personalities involved.
True False |
| 38. | Having all the effective mechanisms listed on the corporate governance checklist in place ensures completely effective corporate governance.
True False |
| 39. | One of the flaws in the board of directors of Enron was that many of the directors were affiliated with organizations that benefited directly from the company’s operations.
True False |
| 40. | Studies show that a commitment to good corporate governance makes a company both more attractive to investors and lenders and more profitable.
True False |
Multiple Choice Questions
| 41. | Corporate governance is the process by which _____.
|
| 42. | Setting up a governance system that allows organizations to be directed and controlled:
|
| 43. | If the corporate governance in an organization is poor, it _____.
|
| 44. | The board of directors of a company:
|
| 45. | The inside members of a company’s board of directors:
|
| 46. | Identify a feature of the outside members of an organization’s board of directors.
|
| 47. | One of the responsibilities of the audit committee of a company is to:
|
| 48. | Catherine, a board member of Clayton Inc., is also part of an operating committee that is responsible for overseeing the accounting policies of the company. This committee is known as the _____.
|
| 49. | The _____ of a company is an operating committee responsible for determining the salaries, bonuses, and perks for the CEO and other senior executives.
|
| 50. | Which of the following is true of the compensation committee of a company?
|
| 51. | Identify a true statement about the corporate governance committee of a company.
|
| 52. | One of the primary responsibilities of an organization’s _____ is to ensure compliance with the company’s internal code of ethics.
|
| 53. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, addressed:
|
| 54. | The main focus of the Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, was on _____.
|
| 55. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, recommended:
|
| 56. | A feature of the King I report on corporate governance, established by Mervyn King in 1994, is that _____.
|
| 57. | The King II report, released by the committee formed by Mervyn King, on corporate governance:
|
| 58. | One of the common characteristics of the King I and King II reports on corporate governance was that _____.
|
| 59. | Which of the following is true of the “comply or explain” approach to corporate governance?
|
| 60. | The “comply or explain” approach to corporate governance was problematic because _____.
|
| 61. | The _____ of 2002 incorporates the “comply or else” approach to corporate governance.
|
| 62. | Which of the following is true of the “comply or else” approach to corporate governance?
|
| 63. | In what way did the “comply or else” approach differ from the “comply or explain” approach to corporate governance?
|
| 64. | Merging the roles of the chief executive officer and the chairperson of the board of an organization is advantageous because _____.
|
| 65. | Which of the following is an effect of merging the roles of the chief executive officer and the chairperson of the board?
|
| 66. | The merging of the roles of the chief executive officer and the chairperson of a board is inadvisable because _____.
|
| 67. | Which of the following is true of the CRAFTED principles of governance?
|
| 68. | Which of the following actions is a step toward running a company successfully?
|
| 69. | Which of the following principles should a company follow for effective corporate governance?
|
| 70. | Walter Salmon’s checklist to assess the quality of the board recommends:
|
| 71. | Which of the following is true of ethical misconduct?
|
| 72. | The fiduciary responsibility of a manager is ultimately based on his or her _____.
|
| 73. | Which of the following is true of managers in an organization with good corporate governance?
|
| 74. | A commitment to good corporate governance:
|
| 75. | Which of the following checks, when in place, reduces the risk of fraud or unethical behavior in a corporation?
|
| 76. | _____ is about the way in which boards oversee the running of a company by its managers and how board members are, in turn, accountable to shareholders and the company.
|
| 77. | The _____ of an organization is staffed by members of the board of directors plus independent or outside directors.
|
| 78. | The Cadbury report, established to address financial aspects of corporate governance, argued for a guideline of _____, which gave companies the flexibility to act in accordance with governance standards or clarify why they do not in their corporate documents.
|
| 79. | The first step in a policy of disregarding the corporate governance model is the decision to:
|
| 80. | If the board of an organization is to serve its purpose in setting the operational tone for the organization, it should be composed of members who:
|
Fill in the Blank Questions
| 81. | _____ is the process by which organizations are directed and controlled.
________________________________________ |
| 82. | The involvement of individual shareholders as owners of an organization helps increase the _____ of managers.
________________________________________ |
| 83. | A board of directors is a group of individuals, elected by the vote of _____ at the annual general meeting, who oversee the governance of an organization.
________________________________________ |
| 84. | A _____ is elected by the owners of a company to represent their interests in the effective running of the company.
________________________________________ |
| 85. | _____ members of a board of directors hold management positions in a company.
________________________________________ |
| 86. | The _____ committee of an organization is responsible for monitoring the financial policies and procedures of the organization.
________________________________________ |
| 87. | The primary responsibility of the _____ committee of an organization is to oversee the compensation packages for the senior executives of the organization.
________________________________________ |
| 88. | The corporate governance committee of an organization oversees compliance with the company’s internal _____ as well as any federal and state regulations on corporate conduct.
________________________________________ |
| 89. | The focus of the _____ report, established in 1992, on corporate governance was on internal governance.
________________________________________ |
| 90. | The _____ report, released by the committee formed by Mervyn King, formally recognized the need to move the stakeholder model forward and consider a triple bottom line as opposed to the traditional single bottom line of profitability.
________________________________________ |
| 91. | The King II report, released by the committee formed by Mervyn King, recommended moving beyond the traditional single bottom line of _____.
________________________________________ |
| 92. | The triple bottom line advocated by the King II report, released by the committee formed by Mervyn King, recognizes the economic, environmental, and _____ aspects of a company’s activities.
________________________________________ |
| 93. | The “_____” approach to corporate governance gave companies the flexibility to comply with governance standards or explain their noncompliance in their corporate documents.
________________________________________ |
| 94. | The Sarbanes-Oxley Act of 2002 incorporates the “_____” approach to corporate governance.
________________________________________ |
| 95. | The “_____” approach to corporate governance requires companies to abide by a set of operating standards or face stiff financial penalties.
________________________________________ |
| 96. | The argument in favor of merging the roles of the CEO and chairperson is one of _____.
________________________________________ |
| 97. | INSEAD, the European business school, offers the _____ principles of corporate governance.
________________________________________ |
| 98. | _____ recommended a checklist of 22 questions to assess the quality of boards of directors in his Harvard Business Review article.
________________________________________ |
| 99. | Running a company of any size effectively requires the board of directors to work with the _____, making constant evaluations of risk-versus-reward scenarios.
________________________________________ |
| 100. | Corporate governance is about managers fulfilling a _____ responsibility to the owners of their companies.
________________________________________ |
Essay Questions
| 101. | What is corporate governance? Why it is important?
|
| 102. | What roles do the audit committee and the compensation committee of an organization play in ensuring good governance?
|
| 103. | In what way did the King I approach on corporate governance differ from the Cadbury approach?
|
| 104. | Explain the “comply or explain” guideline. Why did the “comply or else” policy come into force?
|
| 105. | Does a commitment to good corporate governance affect a company’s profitability?
|
Chapter 05 Corporate Governance Answer Key
True / False Questions
| 1. | Management consulting is the system by which business organizations are directed and controlled.
FALSE Corporate governance is the system by which business organizations are directed and controlled. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 2. | The stakeholders of a company include its customers, its vendor partners, state and local entities, and the community in which it conducts its business operations.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 3. | Corporate transparency is concerned with how well an organization meets its obligations to its stakeholders.
FALSE Corporate governance is concerned with how well an organization meets its obligations to its stakeholders. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 4. | The board members of a company are not accountable to the company and its shareholders.
FALSE The board members of a company are not accountable to the company and its shareholders. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 5. | Corporate governance does not impact the efficiency of financial markets.
FALSE Good corporate governance plays a vital role in underpinning the integrity and efficiency of financial markets. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 6. | A board of directors is a group of individuals who oversee the governance of an organization.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 7. | Creditors, suppliers, and professional consultants represent the inside members of a board of directors.
FALSE The inside members of a board of directors hold management positions in a company. Outside members may have direct connections to the company as creditors, suppliers, customers, or professional consultants. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 8. | Members of a board of directors are not eligible to be a part of the audit committee of an organization.
FALSE The audit committee of an organization is staffed by members of the board of directors plus independent or outside directors. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 9. | The strategic business unit of an organization is responsible for monitoring the financial policies and procedures of the organization.
FALSE The audit committee of an organization is responsible for monitoring the financial policies and procedures of the organization. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 10. | Independent or outside directors are not eligible to be a part of the compensation committee of an organization.
FALSE The compensation committee of an organization is staffed by members of the board of directors plus independent or outside directors. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 11. | The main responsibility of the auditing committee of an organization is to set the compensation for all the employees of the organization, including its outside contractors.
FALSE The compensation committee of an organization is responsible for setting the compensation for the CEO and other senior executives. Compensation policies for the employees of the corporation are left to the management team to oversee. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 12. | Typically, the compensation package of a CEO and other senior executives of an organization consists of a base salary and stock options but does not include any performance bonus or other perks.
FALSE Typically, the compensation package of a CEO and other senior executives of an organization consists of a base salary, stock options, performance bonus, and other perks. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 13. | The corporate governance committee of an organization is staffed by members of the board of directors and specialists.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 14. | The corporate governance committee of a company oversees compliance with its internal code of ethics as well as any federal and state regulations on corporate conduct.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 15. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, dealt exclusively with external governance.
FALSE The Cadbury report on corporate governance focused on internal governance. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 16. | The King Report on Corporate Governance of 1994 incorporated a code of corporate practices and conduct that looked beyond the corporation itself, taking into account its impact on the larger community.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 17. | The King I report, established by Mervyn King in 1994, failed to recognize the involvement of all the corporation’s stakeholders in the efficient and appropriate operation of an organization.
FALSE The King I report recognized the involvement of all the corporation’s stakeholders—the shareholders, customers, employees, vendor partners, and the community in which the corporation operates—in the efficient and appropriate operation of an organization. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 18. | The King II report, released by the committee formed by Mervyn King, formally recognized the need to move the stakeholder model forward and to consider a triple bottom line instead of a single bottom line of profitability.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 19. | The triple bottom line proposed by the King II report, released by the committee formed by Mervyn King, recognizes the economic, environmental, and social aspects of a company’s activities.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 20. | The King II report emphasized the need for companies to adopt an exclusive approach to corporate governance instead of an inclusive one.
FALSE The King II report emphasized the need for companies to adopt an inclusive approach to corporate governance instead of an exclusive one. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 21. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, argued for a guideline of “comply or else,” which required companies to abide by a set of operating standards or face stiff financial penalties.
FALSE The Cadbury report argued for a guideline of “comply or explain” which gave companies the flexibility to comply with governance standards or explain why they do not in their corporate documents. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 22. | The “comply or else” guideline gave companies the flexibility to comply with governance standards or explain their noncompliance in their corporate documents.
FALSE The “comply or explain” guideline gave companies the flexibility to comply with governance standards or explain their noncompliance in their corporate documents. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 23. | The “comply or explain” guideline proved to be an effective deterrent to corporate financial scandals.
FALSE The “comply or explain” guideline was followed by a series of financial scandals which led critics to argue that it offered no real deterrent to corporations. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 24. | The “comply or explain” methodology refers to the set of guidelines that requires companies to abide by a set of operating standards or face stiff financial penalties.
FALSE The “comply or else” methodology refers to the set of guidelines that requires companies to abide by a set of operating standards or face stiff financial penalties. |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 25. | The “comply or else” methodology is more aggressive than the “comply or explain” methodology.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 26. | The Sarbanes-Oxley Act of 2002 incorporates the “comply or else” approach to corporate governance.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 27. | By merging the roles of the chief executive officer and the chairperson of the board of an organization, the oversight provided by the board of directors is magnified.
FALSE By merging the roles of the chief executive officer and the chairperson of the board of an organization, the oversight provided by the board of directors is lost. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 28. | The argument in favor of merging the roles of the chairperson of the board and the chief executive officer of an organization is one of efficiency.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 29. | By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the board is given the benefit of leadership from someone who is in touch with the inner workings of the organization.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 30. | The board of directors of an organization can secure its independence by permitting one individual to function as both the chief executive officer of the organization and the chairperson of its board.
FALSE By permitting one individual to function as both the chief executive officer of an organization and the chairperson of its board, the independence of the board is compromised. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 31. | By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the power of the stockholders is maximized.
FALSE By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the power of the stockholders is minimized. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 32. | The CRAFTED principles of governance, offered by the European business school INSEAD, recommend creating a culture and climate of consistency in an organization.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 33. | If the board of directors is to serve its purpose in setting the operational tone for an organization, it should be comprised of members who represent professional conduct in their own organizations.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 34. | Running a small company does not require a constant evaluation of risk-versus-reward scenarios.
FALSE Running a company of any size requires constant evaluation of risk-versus-reward scenarios. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 35. | In his Harvard Business Review article, Walter Salmon recommends that a good board comprises three or more outside directors for every insider.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 36. | Ethical misconduct is possible even if a board of directors passes all the criteria established by Walter Salmon.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 37. | The ethical conduct of a business can be influenced by the individual personalities involved.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 38. | Having all the effective mechanisms listed on the corporate governance checklist in place ensures completely effective corporate governance.
FALSE Having all the effective mechanisms in place does not necessarily ensure effective corporate governance. |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 39. | One of the flaws in the board of directors of Enron was that many of the directors were affiliated with organizations that benefited directly from the company’s operations.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 40. | Studies show that a commitment to good corporate governance makes a company both more attractive to investors and lenders and more profitable.
TRUE |
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
Multiple Choice Questions
| 41. | Corporate governance is the process by which _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the term corporate governance. |
| 42. | Setting up a governance system that allows organizations to be directed and controlled:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the term corporate governance. |
| 43. | If the corporate governance in an organization is poor, it _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the term corporate governance. |
| 44. | The board of directors of a company:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 45. | The inside members of a company’s board of directors:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 46. | Identify a feature of the outside members of an organization’s board of directors.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 47. | One of the responsibilities of the audit committee of a company is to:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 48. | Catherine, a board member of Clayton Inc., is also part of an operating committee that is responsible for overseeing the accounting policies of the company. This committee is known as the _____.
|
| Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 49. | The _____ of a company is an operating committee responsible for determining the salaries, bonuses, and perks for the CEO and other senior executives.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 50. | Which of the following is true of the compensation committee of a company?
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 51. | Identify a true statement about the corporate governance committee of a company.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 52. | One of the primary responsibilities of an organization’s _____ is to ensure compliance with the company’s internal code of ethics.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 53. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, addressed:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 54. | The main focus of the Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, was on _____.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 55. | The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, recommended:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 56. | A feature of the King I report on corporate governance, established by Mervyn King in 1994, is that _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 57. | The King II report, released by the committee formed by Mervyn King, on corporate governance:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 58. | One of the common characteristics of the King I and King II reports on corporate governance was that _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 59. | Which of the following is true of the “comply or explain” approach to corporate governance?
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 60. | The “comply or explain” approach to corporate governance was problematic because _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 61. | The _____ of 2002 incorporates the “comply or else” approach to corporate governance.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 62. | Which of the following is true of the “comply or else” approach to corporate governance?
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 63. | In what way did the “comply or else” approach differ from the “comply or explain” approach to corporate governance?
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 64. | Merging the roles of the chief executive officer and the chairperson of the board of an organization is advantageous because _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 65. | Which of the following is an effect of merging the roles of the chief executive officer and the chairperson of the board?
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 66. | The merging of the roles of the chief executive officer and the chairperson of a board is inadvisable because _____.
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 67. | Which of the following is true of the CRAFTED principles of governance?
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| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 68. | Which of the following actions is a step toward running a company successfully?
|
| Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 69. | Which of the following principles should a company follow for effective corporate governance?
|
| Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 70. | Walter Salmon’s checklist to assess the quality of the board recommends:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 71. | Which of the following is true of ethical misconduct?
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| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 72. | The fiduciary responsibility of a manager is ultimately based on his or her _____.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 73. | Which of the following is true of managers in an organization with good corporate governance?
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| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 74. | A commitment to good corporate governance:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 75. | Which of the following checks, when in place, reduces the risk of fraud or unethical behavior in a corporation?
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 76. | _____ is about the way in which boards oversee the running of a company by its managers and how board members are, in turn, accountable to shareholders and the company.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 77. | The _____ of an organization is staffed by members of the board of directors plus independent or outside directors.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 78. | The Cadbury report, established to address financial aspects of corporate governance, argued for a guideline of _____, which gave companies the flexibility to act in accordance with governance standards or clarify why they do not in their corporate documents.
|
| Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 79. | The first step in a policy of disregarding the corporate governance model is the decision to:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 80. | If the board of an organization is to serve its purpose in setting the operational tone for the organization, it should be composed of members who:
|
| Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
Fill in the Blank Questions
| 81. | _____ is the process by which organizations are directed and controlled.
Corporate governance |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Explain the term corporate governance. |
| 82. | The involvement of individual shareholders as owners of an organization helps increase the _____ of managers.
accountability |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the term corporate governance. |
| 83. | A board of directors is a group of individuals, elected by the vote of _____ at the annual general meeting, who oversee the governance of an organization.
shareholders |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 84. | A _____ is elected by the owners of a company to represent their interests in the effective running of the company.
board of directors |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 85. | _____ members of a board of directors hold management positions in a company.
Inside |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 86. | The _____ committee of an organization is responsible for monitoring the financial policies and procedures of the organization.
audit |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 87. | The primary responsibility of the _____ committee of an organization is to oversee the compensation packages for the senior executives of the organization.
compensation |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 88. | The corporate governance committee of an organization oversees compliance with the company’s internal _____ as well as any federal and state regulations on corporate conduct.
code of ethics |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 89. | The focus of the _____ report, established in 1992, on corporate governance was on internal governance.
Cadbury |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 90. | The _____ report, released by the committee formed by Mervyn King, formally recognized the need to move the stakeholder model forward and consider a triple bottom line as opposed to the traditional single bottom line of profitability.
King II |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 91. | The King II report, released by the committee formed by Mervyn King, recommended moving beyond the traditional single bottom line of _____.
profitability |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 92. | The triple bottom line advocated by the King II report, released by the committee formed by Mervyn King, recognizes the economic, environmental, and _____ aspects of a company’s activities.
social |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 93. | The “_____” approach to corporate governance gave companies the flexibility to comply with governance standards or explain their noncompliance in their corporate documents.
comply or explain |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 94. | The Sarbanes-Oxley Act of 2002 incorporates the “_____” approach to corporate governance.
comply or else |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 95. | The “_____” approach to corporate governance requires companies to abide by a set of operating standards or face stiff financial penalties.
comply or else |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 96. | The argument in favor of merging the roles of the CEO and chairperson is one of _____.
efficiency |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 97. | INSEAD, the European business school, offers the _____ principles of corporate governance.
CRAFTED |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 98. | _____ recommended a checklist of 22 questions to assess the quality of boards of directors in his Harvard Business Review article.
Walter Salmon |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 99. | Running a company of any size effectively requires the board of directors to work with the _____, making constant evaluations of risk-versus-reward scenarios.
chief executive officer |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
| 100. | Corporate governance is about managers fulfilling a _____ responsibility to the owners of their companies.
fiduciary |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
Essay Questions
| 101. | What is corporate governance? Why it is important?
Corporate governance is the process by which organizations are directed and controlled. It is concerned with how well organizations meet their obligations to their stakeholders. It ensures the accountability of managers to board members, and in turn, the accountability of board members to shareholders. Good corporate governance plays a vital role in underpinning the integrity and efficiency of financial markets. Poor corporate governance weakens a company’s potential and at worst can pave the way for financial difficulties and even fraud. If companies are well governed, they will usually outperform other companies and will be able to attract investors whose support can finance further growth. |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Explain the term corporate governance. |
| 102. | What roles do the audit committee and the compensation committee of an organization play in ensuring good governance?
The audit committee of an organization is an operating committee staffed by members of the board of directors plus independent or outside directors. The committee is responsible for monitoring the financial policies and procedures of the organization—specifically the accounting policies, internal controls, and the hiring of external auditors. |
| Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Understand the responsibilities of the board of directors and the major governance committees. |
| 103. | In what way did the King I approach on corporate governance differ from the Cadbury approach?
In contrast to Cadbury’s focus on internal governance, the King I report “incorporated a code of corporate practices and conduct that looked beyond the corporation itself, taking into account its impact on the larger community.” It went beyond the financial and regulatory accountability upon which the Cadbury report had focused and took a more integrated approach to the topic of corporate governance, recognizing the involvement of all the corporation’s stakeholders—the shareholders, customers, employees, vendor partners, and the community in which the corporation operates— in the efficient and appropriate operation of the organization. |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Explain the significance of the “King I” and “King II” reports. |
| 104. | Explain the “comply or explain” guideline. Why did the “comply or else” policy come into force?
The guideline of “comply or explain” gave companies the flexibility to comply with governance standards or explain why they did not in their corporate documents (annual reports, for example). The vagueness of what would constitute an acceptable explanation for not complying, combined with the ease with which such explanations could be buried in the footnotes of an annual report, raised concerns that comply or explain really wouldn’t do much for corporate governance. The string of financial scandals that followed the report led many critics to argue that “comply or explain” offered no real deterrent to corporations. The answer, they argued, was to move to a more aggressive approach of comply or else, where failure to comply would result in stiff financial penalties. The Sarbanes-Oxley Act of 2002 came into force and incorporated this approach. |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Explain the differences between the following two governance methodologies: “comply or explain” and “comply or else.” |
| 105. | Does a commitment to good corporate governance affect a company’s profitability?
A commitment to good corporate governance makes a company both more attractive to investors and lenders and more profitable. A Deutsche Bank study of Standard & Poor’s 500 firms showed that companies with strong or improving corporate governance outperform those with poor or deteriorating governance practices. A Harvard-Wharton study showed that U.S.-based firms with better governance have faster sales growth and were more profitable than their peers. In a 2002 McKinsey survey, institutional investors said they would pay premiums to own well-governed companies. |
| Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Identify an appropriate corporate governance model for an organization. |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
