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Exam 10: Corporate Governance.

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Question 81

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Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions.

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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

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Usually,large-block shareholders are considered to be those shareholders with at least stock.

If a stakeholder is dissatisfied with a firm,it will withdraw its support and give it to another firm.

Product diversification provides two benefits to managers that do not accrue to shareholders: and______.

German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because

As a rule,shareholders prefer more product diversification than do managers because shareholders wish to reduce risk and maximize wealth.

Case Scenario 2: Raptec. Raptec operates in three principal business segments: Direct Attached Storage ("DAS"), Storage Networking Solutions ("SNS"), and Software. These hardware and software products are found in high-performance networks, servers, workstations, and desktops from the world's leading OEMs, and are sold through distribution channels to Internet service providers, enterprises, and medium and small businesses and consumers. Since the time it went public, Raptec has experienced rapid growth and consistently profitable operations. In early 2002, Raptec announced its plan to spin-off the software segment, subsequently incorporated as Axio, Inc., in the form of a fully independent and separate company. Software was Raptec's most profitable and fastest growing segment. By mid- 2002 Raptec had completed the initial public offering of approximately 15 percent of Axio's stock, and then distributed the remaining Axio stock to Raptec's stockholders in a tax-free distribution. Axio's family of products includes category leaders in CD/DVD burning, digital photography, and digital video. Axio's new management team is composed of Lex Luthor, CEO, and previously the President of New Business Development for Universal Studios Recreation Group; Karal Kool, COO, and previously General Manager of Raptec's OEM Solutions Group; and R. Elliot Maxter, CFO, and previously corporate controller for Raptec. The interim four-member board of directors is currently comprised of Raptec senior officers, but the terms of the public offering require them to step down in 2 months. Thus, Axio will need to construct a new board, which in turn will be responsible for overseeing Axio's management and their compensation. -(Refer to Case Scenario 2). How should the board design the executive compensation scheme for Luthor,Kool,and Maxter?

The longer the focus of managerial incentive compensation,the greater the______top-level managers.

As ownership of the corporation is diffused,shareholders' ability to monitor managerial decisions