| 2008 CFA Level 2 － Mock Exam 2 （PM）模考试题 Q9 (part 1 - Part 6)
Question 9 Reed
Anderson, CFA, assumed the title of Chief Executive Officer for Chemco
Industries, a manufacturer of petroleum-based products utilized in the
production of plastics. The former CEO of Chemco resigned under
pressure from disgruntled shareholders amid allegations of impropriety.
Accusations include misrepresentation of potential shareholder
earnings, possible conflict of interest with a board member, and
granting excessive compensation to certain favored members of upper
management. The former CEO also served as Chairman of the company’s
board, and had handpicked members of the Board. The Board included
mostly members of upper management and only one truly independent
member. In addition, one board member has business ties to Chemco
through her employer, a bank which has loans outstanding to Chemco.
Another problem was that the compensation committee was previously
composed of the CEO and two other Chemco officers. Initial
steps have been taken by a group of shareholders to file a class action
suit for gross mismanagement against the both the Board and Chemco’s
upper management. Anderson
has experience in stepping into a leadership position in “troubled”
companies and successfully putting measures in place to get the company
back on track. The challenge with Chemco is expected to be extremely
difficult because Chemco has experienced decreased earnings over the
past two years with an accompanying drop in share price. Anderson
anticipates serving as Chemco’s CEO for approximately two years, in
order to ensure that proper governance procedures are put in place and
are fully implemented. After two years, the board should be in the
position to search for a permanent replacement for Anderson. Anderson’s
first order of business is to evaluate Chemco’s statement of corporate
governance policy, which was written over ten years ago when Chemco
first became a publicly traded company. It was printed in that year’s
annual report, but has not been updated or re-released to the public
since that time. In his judgment, it is entirely inadequate and must be
completely re-written in order to give assurance to shareholders that
management is working in the shareholders’ best interests. Anderson’s goal is to have both Chemco’s board and management team adhere to corporate governance best practices. Anderson
believes that any efforts to restore profitability will be in vain
without first restoring investor confidence in the company. Only after
shareholders trust that management is working in the shareholders’ best
interests can the share price of Chemco be expected to trade back up to
an appropriate level. Anderson
wants to prevent any future conflicts of interest with board members.
He first calls for and receives the resignation of the board member
with the existing conflict. He then asks three members of management
plus the independent board member to formally outline a policy for
selecting future board members, and to develop measures to assess their
performance. This must be in place before a search can be made for new,
independent board members. Another concern of Anderson’s
is the existing structure of the compensation committee and their
current operating procedures. He believes there is merit to the
accusations that excessive compensation had been granted in the past.
Certain members of Chemco’s upper management received increasing levels
of compensation even as profitability and the share price declined.
Part of the problem lies in the fact that the compensation committee
was formerly composed of three managers and one independent board
member. Anderson
has mandated that the formal policy must specify the make-up of the
compensation committee going forward. He also has stated that the CEO’s
performance must be regularly evaluated, and that any changes in
compensation will be based upon the prior year’s performance. Anderson’s
goal is establish a strong governance policy that will prevent future
violations of best practices and to reduce risk to the company’s
investors. 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. 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. 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. 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. 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. 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. | 
发表于 2009-1-6 00:23
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