Reading 34- LOS a (Part 2) ～ Q1－6

1.In general, a corporate governance system will NOT strive to manage a potential conflict of interest that may arise between management and which of the following groups?

A)   Auditors.

B)   Creditors.

C)   Directors.

D)   Employees.

The correct answer was A)

Corporate governance policies attempt to eliminate the opportunity for management to place their own interest ahead of other stakeholders, such as shareholders, creditors, directors, employees, and customers.

2.Most corporate governance systems focus on the elimination or reduction of any potential conflicts that may arise between management and:

A)   employees.

B)   shareholders.

C)   creditors.

D)   directors.

The correct answer was B)

There is potential for many conflicts of interest to arise in a corporation, but most corporate governance systems focus on those between management and shareholders.

3.The main objectives of a corporate governance system are best described as to:

A)   define the rights of shareholders, and to facilitate fair and equal treatment in dealings between management and other stakeholders.

B)   eliminate or reduce conflicts of interest, and to use the company’s assets in a manner consistent with the stakeholders’ best interests.

C)   facilitate open communication between management and stakeholders, and to most effectively utilize corporate assets.

D)   promote compliance with the Sarbanes-Oxley act, and to clearly define the roles and responsibilities of management and directors.

The correct answer was B)

A corporate governance system generally focuses on the elimination or reduction of conflicts of interest, particularly between management and shareholders, as well as the prudent utilization of corporate assets for the benefit of investors and other stakeholders.

4.All of the following are attributes of an effective corporate governance system EXCEPT:

A)   executive compensation is not excessive in comparison with other industry firms.

B)   have complete transparency and accuracy in disclosures regarding operations, performance, risk, and financial position.

C)   define and communicate to stakeholders the oversight responsibilities of managers and directors.

D)   provide for fair and equitable treatment in all dealings between managers, directors, and shareholders.

The correct answer was A)

Although executive compensation that is not excessive may be an outcome of a strong corporate governance system, it is not considered a core attribute.

5.Mitchell Cash is a corporate governance consultant for Yost and Karl Consulting. In a presentation to a prospective new client, Cash states that an effective corporate governance system will:

§ Provide for fair and equitable treatment in all dealings between managers, directors, and shareholders.

§ Have complete transparency and accuracy in all disclosures regarding operations, performance, risk, and financial systems.

Which of the following is a core attribute of effective corporate governance systems that Cash left out of his presentation?

A)   Chief officers of a corporation are legally authorized to enter into contracts on behalf of the business.

B)   Clearly defined manager and director governance responsibilities to stakeholders.

C)   Shareholders have a 100 percent claim on the net income of a corporation.

D)   Legal and regulatory requirements are complied with fully and in a timely fashion.

The correct answer was B)

All effective corporate governance systems share the following attributes:

§ Define the rights of shareholders and other important stakeholders.

§ Clearly identify manager and director governance responsibilities to stakeholders.

§ Provide clear and measurable accountability for managers and directors in assuming their responsibilities.

§ Provide for fair and equitable treatment in all dealings between managers, directors, and shareholders.

§ Have complete transparency and accuracy in disclosures regarding operations, performance, risk, and financial position.

6.In a presentation to a group of students in an Executive MBA class, Professor Steven Dawes tells the class that corporate governance systems will tend to differ based on the legal environment, culture an industry in which a firm operates, however, all corporate governance systems share certain common attributes. Dawes continues on to make two statements:

Which of Dawes’ statements are consistent with the core attributes of an effective corporate governance system?

A)   Both Statement 1 and Statement 2 are consistent.

B)   Both Statement 1 and Statement 2 are inconsistent.

C)   Statement 1 is inconsistent, but Statement 2 is consistent.

D)   Statement 1 is consistent, Statement 2 is inconsistent.

The correct answer was D)

All effective corporate governance systems share the following attributes:

§ Define the rights of shareholders and other important stakeholders.

§ Clearly identify manager and director governance responsibilities to stakeholders.

§ Provide clear and measurable accountability for managers and directors in assuming their responsibilities.

§ Provide for fair and equitable treatment in all dealings between managers, directors, and shareholders.

§ Have complete transparency and accuracy in disclosures regarding operations, performance, risk, and financial position.

Dawes’ first statement is consistent with these attributes; however, his second statement is not.