CG 4

According to Adam Smith, why can the directors of companies not be expected to watch over other people's money with the same vigilance as they watch over their own?

• Because they are not capable of managing money effectively

• Because they are self-interested and prioritize their own interests

• Because they lack the necessary skills and knowledge

• Because they are not legally allowed to do so

What is the agency dilemma and why is it relevant in public companies today?

• It is the issue of employee management, and it is relevant due to the need for better HR practices

• It is the conflict of interest between shareholders and directors, and it is relevant due to the complex nature of agency relationships

• It is the lack of transparency in financial reporting, and it is relevant due to the high level of competition in the market

• It is the legal restrictions on corporate governance, and it is relevant due to the changing regulatory environment

What does agency theory suggest about the nature of individuals involved in corporate governance?

• That people are self-interested and directors may act in their own interests

• That people are altruistic and always act in the best interests of others

• That directors will prioritize the interests of shareholders over their own

• That shareholders have complete control over directors' decisions

What is meant by the term 'asymmetrical access to information' in the context of corporate governance?

• It refers to the imbalance in knowledge between directors and shareholders

• It refers to the equal distribution of information among all stakeholders

• It refers to the legal requirements for information disclosure

• It refers to the transparency in financial reporting practices

According to Jensen and Meckling, what is a key issue related to agency problems in corporate governance?

• The asymmetrical access to information

• The lack of regulatory oversight

• Agents will tend to act in their own interests and not always in the best interest of their principal

• The conflict of interest between chairman and CEO

What does stewardship theory suggest about the role of directors in a company?

• Directors are not accountable for their actions

• Directors have no legal obligations towards shareholders

• Directors are trusted to be the best stewards for shareholders' interests

• Directors are primarily focused on maximizing their own benefits

What is the main criticism of stewardship theory in the context of modern corporations?

• It does not consider the legal duties of directors

• It overlooks the complexity and lack of transparency in listed companies

• It does not address the issue of financial reporting

• It assumes that shareholders have direct control over directors

What does system theory provide in the context of corporate governance?

• It offers a framework to understand the relationship between shareholders and directors

• It focuses on the legal obligations of directors towards stakeholders

• It emphasizes the importance of financial performance in governance

• It provides a way to relate alternative views and understand the functioning of systems

According to Pettigrew, what is a key issue with corporate governance?

• The lack of transparency in financial markets

• The conflict between shareholders and employees

• The lack of coherence and understanding in how modern corporations are managed

• The excessive regulations imposed on companies

Why is good corporate governance important according to the Association of British Insurers?

• It leads to higher profits for shareholders

• It ensures compliance with legal regulations

• It has a causal relationship with superior company performance

• It reduces the risk of agency problems