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Exam 10: Corporate Governance

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Question 81

Multiple Choice

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A primary objective of corporate governance is to

A) determine and control the strategic direction of an organization, so that the top executives are focused on maximizing corporate profits.
B) ensure that the interests of top-level managers are aligned with the interests of shareholders.
C) lobby legislators to pass laws that are aligned with the organization's interests.
D) resolve conflicts among corporate employees.

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Question 82

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Amelia Smith is the sole owner of the successful restaurant chain, Amelia's Café. Ms. Smith has taken a no-interest loan from the company in order to build a luxurious seaside house for herself in Carmel, California. This constitutes a classic agency problem.

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Question 83

True/False

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An advantage of severance packages is that they may encourage top level managers to accept takeover bids that are attractive to shareholders.

More intense application of governance mechanisms may produce significant changes in strategies, for example, firms may take on fewer risky projects and thus increase potential shareholder wealth.

Historically, ____ have been at the center of German corporate governance structure.

An agency relationship exists when one party delegates

The chapter Opening Case indicates that many CEOs earn more than ____times the amount received by their firm's lowest-paid employee.

According to the chapter Strategic Focus, the weakness of corporate boards was exemplified by the fact that the President of the United States had to fire a highly ineffective CEO because the board of General Motors had failed to act in recent years.

Which of the following is a FALSE statement about corporate governance?

Corporate involves oversight in areas where owners, managers, and members of boards of directors may have conflicts of interest.

Generous severance packages make executives less resistant to the market for corporate control.

In ZYX Corp., two shareholders own 85 percent of company stock. This represents a high degree of ownership concentration.

The separation of the positions of CEO and chairperson of the board of directors reduces the power of the CEO over firm governance practices.

Boards with many members from the firm's top management team tend to have weak monitoring and control systems for managerial decisions.

The CEO of Alta Corp. is dismayed by a lack of effort and insights his directors provide during board meetings. The directors are all outsiders, experienced, and run their own successful firms. The CEO genuinely seeks their greater involvement. What would you recommend?

Case Scenario : Abramson's Jewelers. Abramson's Jewelers has established a strong niche market in the upscale jewelry store segment. Abramson's was founded in 1871, and its current single-store location is owned and operated by John Wickersham, who bought the firm from its namesake founders in 1985. Over the last 15 years, Mr. Wickersham has narrowed the company's product offering considerably to focus only on high-end watches like Rolex and Piaget, custom jewelry, and estate jewelry. Mr. Wickersham stresses that this is an appropriate focus for his business since each of the products lends itself to relationship selling, and price rarely comes into the discussion. Despite the narrower offering, Abramson's floor space has doubled, and clients are intensely loyal to the good taste, design skills, and personal service level provided by Mr. Wickersham. After evaluating several expansion options, Mr. Wickersham has decided to open another store in a neighboring city. While it is likely that some of his existing customers may begin doing business at the other location, thus lowering sales volume at the original store, Mr. Wickersham sees this as a desirable increase in the level of service and convenience he can provide his existing clientele. At the same time, he believes that he will be able to grow the overall business faster with two locations. He has identified another reputable gemologist, Jill Diamond, to run the other store and is now considering how to compensate her. -(Refer to the above Case Scenario ) What are the advantages and disadvantages of paying the new manager primarily on new store sales growth?

Critics advocate reforms to ensure that independent outside directors represent a significant majority of the total membership of the board. But, outsider dominated boards may emphasize the use of financial as opposed to strategic controls. The risk of reliance on financial controls is that they may encourage managers to make decisions to maximize their interests and reduce their employment risk.

____ is an important influence in Japanese corporate governance structures.

Which of the following is FALSE about corporate governance in China?

Corporate governance revolves around the relationship between which two parties?