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Exam 10: Corporate Governance

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Question 81

Multiple Choice

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An agency relationship exists when one party delegates

A) decision making responsibility to a second party.
B) financial responsibility to employees.
C) strategy implementation actions to functional managers.
D) ownership of a company to a second party.

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Question 82

Multiple Choice

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

A) banks
B) institutional shareholders
C) public pension funds
D) government agencies

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Question 83

Multiple Choice

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Corporate governance revolves around the relationship between which two parties?

A primary objective of corporate governance is to

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

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.

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?

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

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

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?

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

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.

____ is an important influence in Japanese corporate governance structures.

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

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

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

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.

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 FALSE about corporate governance in China?