1.Rochelle Dixon is delivering a presentation on best practices for corporate governance. Two of her recommendations are as follows:

Statement 1: To avoid the potential for harming shareholders’ interests by wasting company resources, the Board of Directors should get management’s approval before it hires outside consultants.

Statement 2: The more members a Board of Directors has, the more likely it is to represent shareholders’ interests fairly.

Are Dixon’s statements correct?

A)                                        Correct  Correct

B)                                        Incorrect       Incorrect

C)                                        Correct  Incorrect

D)                                        Incorrect       Correct

2.A board of directors is most likely to protect the shareholders’ interests when:

A)   the board requires that management attend all meetings.

B)   the board includes representatives from the firm’s key customers and suppliers.

C)   one individual can be identified as the leading board member from outside the firm.

D)   a majority of the board is comprised of the firm’s key executives.

答案和详解如下：

1.Rochelle Dixon is delivering a presentation on best practices for corporate governance. Two of her recommendations are as follows:

Statement 1: To avoid the potential for harming shareholders’ interests by wasting company resources, the Board of Directors should get management’s approval before it hires outside consultants.

Statement 2: The more members a Board of Directors has, the more likely it is to represent shareholders’ interests fairly.

Are Dixon’s statements correct?

Statement 1

Statement 2

A)                                        Correct  Correct

B)                                        Incorrect       Incorrect

C)                                        Correct  Incorrect

D)                                        Incorrect       Correct

The correct answer was B)

Both statements are incorrect. An independent board should have the ability to seek specialized advice by hiring outside consultants without management approval. The size of the board should be appropriate for the facts and circumstances of the firm; having more members does not imply that the board will be more independent if the additional members are aligned closely with management or are less well qualified.

2.A board of directors is most likely to protect the shareholders’ interests when:

A)   the board requires that management attend all meetings.

B)   the board includes representatives from the firm’s key customers and suppliers.

C)   one individual can be identified as the leading board member from outside the firm.

D)   a majority of the board is comprised of the firm’s key executives.

The correct answer was C)

Especially in cases where the chairman of the board is closely aligned with the firm, independent board members are more able to protect shareholders’ interests when they have a leading or primary independent member. The board should meet regularly outside the presence of management. Board members who represent the firm’s customers and suppliers may have interests that conflict with those of shareholders. A board is unlikely to be independent if the firm’s management comprises a majority.