Ethics and Corporate Governance

What is corporate governance?

• A set of rules and procedures aimed at expanding the company’s markets

• A series of rules and procedures for monitoring competitors’ governance processes

• A series of structures and processes for the direction and control of a company

• A series of rules and procedures for production management

Principal-Agent Dilemma is the basis for corporate governance, and results from the separation of control between:

• Management and the stakeholders of a firm

• Shareholders and stakeholders of a firm

• Government and private sector firms

• Management and the shareholders of a firm

The purpose of the Board of Directors is to:

• Manage the day-to-day activities of the company

• Execute the managing director’s instructions

• Set the strategy and effectively monitor management

• Represent the company in front of the media

The requirements of a board of directors vary significantly by country and by state; however, there is a developing consensus as to what the major responsibilities should be. Which of the following is NOT one of the responsibilities?

• Reviewing and approving the use of resources

• Setting corporate strategy, overall direction, mission or vision

• Controlling, monitoring, or supervising top management

• Becoming directly involved in managerial decisions

A careless director or directors can be held personally liable for harm done to the corporation if they failed to act with

• figurehead role

• accountability

• initiation and determination

• due care

According to ________ theory, ________ directors tend to identify with the corporation.

• agency; inside

• corporate governance; inside

• stewardship; inside

• stewardship; outside

The theory which states that problems arise in corporations because top management no longer is willing to bear the brunt of their decisions unless they own a substantial amount of stock in the corporation is called

• agency theory

• strategic leadership theory

• ownership theory

• sustainable theory

Research reveals that the likelihood of a firm engaging in illegal behavior or being sued declines

• with a larger board

• with the addition of insiders on the board

• with the addition of outsiders on the board

• with a well-compensated board

________ theory argues that senior executives over time tend to view the corporation as an extension of themselves.

• Motivation

• Stewardship

• Agency

• Goal setting

An agency problem can occur when

• the desires and objectives of the owners and agents conflict.

• when the owners and agents have different attitudes toward risk.

• executives do not select risky strategies because they fear losing their jobs if the strategy fails.

• All are correct