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Which of the following statements regarding effective corporate governance systems is least accurate?

A)	The primary responsibilities of a corporate board of directors are to institute corporate values and establish long-term strategic objectives that are in the best interests of shareholders.

B)	A corporate governance system must be continuously monitored because of changes in management and the board of directors.

C)	A comprehensive list of corporate governance best practices can be applied effectively to any corporation worldwide to strengthen the company’s corporate governance structure.

Corporate governance systems will differ according to the legal environment, culture, and industry in which a firm operates, so a list of best practices cannot simply be applied to all firms worldwide with any expectation that the corporate governance structure will be strengthened. There are, however, a number of common characteristics that all sound corporate governance structures share.

Chen Michiba is an Executive Vice President with the Sakai Corporation. Michiba is concerned that Sakai does not have an effective corporate governance system in place and drafts a memo to the company’s senior management team detailing a potential structure for an improved system. Michiba starts his memo by listing the two key objectives of corporate governance:

A)	incorrect with respect to both Objectives.

B)	correct with respect to Objective 1, but incorrect with respect to Objective 2.

C)	correct with respect to both Objectives.

Although Michiba lists two admirable goals and actions that should be performed by a firm’s board of directors, neither item is one of the two key objectives of a corporate governance system. The two key objectives of a corporate governance system: (1) Eliminate or reduce conflicts of interest (particularly those between managers and shareholders), and (2) Ensure that the assets of a company are used efficiently and productively and in the best interests of its investors and other stakeholders.

A)	the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome conflicts of interest inherent in the corporate form.

B)	the system in a corporate structure that insures fairness and equitable treatment in all dealings between managers, directors, and shareholders.

C)	a system designed to insure that a corporation’s business is conducted in an ethical, fair, and professional manner.

McEnally and Kim define corporate governance as “the system of principles, polices, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome conflicts of interest in the corporate form.”

Which of the following best describes the importance of a corporate governance system? A strong corporate governance system:

A)	maximizes shareholder value.

B)	is essential for companies to operate efficiently, while the lack of an effective corporate governance system can threaten the very existence of a firm.

C)	gives the firm the ability to attract and fairly compensate qualified managers to ensure that assets of the company are used efficiently and productively.

A strong corporate governance system is essential for companies and financial markets to operate efficiently, while the lack of strong corporate governance system represents a major operational risk that can threaten the very existence of a firm. A strong corporate governance system cannot in itself maximize shareholder value, but studies have shown that the lack of effective system certainly reduces shareholder value.

Objective 1:	Establish clear lines of responsibility and a system of accountability and performance measurement in all phases of a company’s operations.
Objective 2:	Ensure that all legal and regulatory requirements are met and complied with fully and in a timely fashion.