Part 1) Anderson’s goal in incorporating corporate governance best practices is most likely to: A) provide appropriate incentives for managers to maximize wealth for investors and other stakeholders. B) precisely define the parameters and expectations of the principal-agency relationship. C) promote and encourage communication between directors and shareholders. D) utilize company assets in a manner consistent with the best interest of shareholders.
The correct answer was D) utilize company assets in a manner consistent with the best interest of shareholders. The two main objectives of corporate governance are to eliminate or reduce conflicts of interest and to use the company’s assets for the benefit of investors and other stakeholders. This question tested from Session 9, Reading 34, LOS d Part 2) Being a corporation, Chemco is subject to unique conflicts of interests problems that other types of business forms will not experience. However, corporations do have several advantages over sole proprietorships and partnerships. Which of the following is least likely to be considered to be an advantage of a corporate structure? A) Ownership stakes are easily transferable, allowing a corporation to have an unlimited life. B) It is easier for corporations to raise large amounts of capital. C) Liability is shared among the owners of a corporation. D) There is no need for owners of a corporation to be industry experts.
The correct answer was C) Liability is shared among the owners of a corporation. Corporate shareholders have limited liability. There is a legal distinction between a corporation and its shareholders—that of limited liability—so the most a shareholder can lose is the amount invested. This question tested from Session 9, Reading 34, LOS d Part 3) In order to prevent future conflicts interest between directors and shareholders, Anderson has called for the formalization of Chemco’s policies in accordance with best practices. There are many factors that could potentially cause directors to align more closely with managers than shareholders. Which of the following scenarios would least likely lead to a conflict of interest? A) Four of Chemco’s seven board members also serve as managers of the company. B) Management provides the financial information to the members at all board meetings. C) Chemco board members are permitted to serve on two other company’s boards of directors. D) The nominating committee is a mix of independent directors and management.
The correct answer was C) Chemco board members are permitted to serve on two other company’s boards of directors. Directors should bring experience and skills to the company, and serving on other boards is acceptable as long as the number is not excessive. The nominating committee should be composed of strictly independent directors. A minimum of 50% of the board members should be independent directors. The board should seek to confirm the completeness and correctness of financial information. Relying strictly on management for financial information creates the potential for a conflict of interest. This question tested from Session 9, Reading 34, LOS d Part 4) Which of the following actions on the part of a compensation committee is most likely to result in the management working in accordance with the best practices of corporate governance? A) Using the salaries of employees at other companies as a reference point for establishing compensation for managers. B) Re-pricing of stock options previously granted to managers after a stock price decline. C) Composing the make-up of the compensation committee entirely of independent board members. D) Establishing base salary as a small percentage of compensation, with bonuses and stock options tied to performance goals making up the majority of manager’s income.
The correct answer was D) Establishing base salary as a small percentage of compensation, with bonuses and stock options tied to performance goals making up the majority of manager’s income. By aligning the interests of shareholders and management, the committee is more likely to obtain the result that management uses the firm’s assets to the benefit of the owners. By making salary a small part of the total compensation package, they are giving managers the incentive to work in the best interests of the firm’s shareholders. This question tested from Session 9, Reading 34, LOS d Part 5) Analysts and shareholders assessing Chemco’s new policies are least likely to approve of which of the following practices? A) Chemco’s board will assess its own effectiveness twice a year. B) Elections of Chemco’s directors will be held on an annual basis. C) Chemco’s board will use independent outside counsel when legal counsel is required. D) Chemco’s internal audit staff will report directly to the board.
The correct answer was D) Chemco’s internal audit staff will report directly to the board. A firm’s internal audit staff should report directly to the audit committee. The audit committee should be composed only of independent directors that are experienced in financial and accounting matters. This question tested from Session 9, Reading 34, LOS d Part 6)
Since one of Chemco’s existing board members is also a senior vice president at a bank that currently has loans outstanding to Chemco, which of the following statements is most accurate? The board member: A) can continue to serve as an independent director if she has no further dealings with Chemco’s account through her position at the bank. B) can continue to serve on Chemco’s board, but cannot be classified as an independent director. C) cannot continue to serve on Chemco’s board so long as her bank has loans to Chemco outstanding. D) can continue to serve on Chemco’s board so long as Chemco seeks loans from other banks in the future.
Your answer: B was correct! Global best practices state that at least three-quarters of a board be composed of independent members. The board member can serve on Chemco’s board, but because of her bank’s relationship with Chemco, she would not be considered independent from Chemco’s management. This question tested from Session 9, Reading 34, LOS d
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发表于 2008-5-26 18:09
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