Dark horse: Corporate governance

Feel this was underrepresented in the practice exams so here are some quiz questions (nasty ones, answers scroll down) 1. With regards to shareholder wealth maximisation, what is a creditor’s ‘flat claim’ ? Cadbury report: 2. Which of the following does the report suggest is not a good tool to compensate non-executive directors (salary, bonus, shares, options, pension) ? 3. Which of the following committees does the Cadbury report say needs to be dominated by, but does NOT say requires a majority of non-executives: [audit committee, nomination committee, remuneration committee] ? 4. Where does the directors statement come in the annual report? 5. In the directors, which of the following should be filed, but NOT necessarily in the director’s statement [state legal requirement to prepare complete statements reflecting the firm’s condition, material departures from applicable accounting standards, effectiveness of internal control system] ? 6. What percentage of a firm’s stock can an insider (such as a director) hold without losing his tax advantage? 7. From the point of view of a manager with an active investor on his share register, what is the big irony of the active investor always checking up on his performance? 8. In what situations are regulatory codes concerning corporate governance binding? 9. There are four stated implicit managerial incentives, which is missing [Being fired by the board, Losing the job due to a hostile takeover, Losing outside financing sources, ???] ? 10. Which has been the easiest moral hazard (re: directors wrongdoing) to prove? 1. ‘Fixed amount of the creditor’s claim, often supported by a claim on collateral’ 2. Options, AND pensions 3. Audit committee, Needs 3+ non-execs 4. IMMEDIATELY before the audit report 5. Effectiveness of internal control system, this is a separate report 6. 10% 7. Institutional investors rarely face the same pressure they apply to corporations! 8. They aren’t, they ‘increase awareness’ 9. Losing influence due to appointment of new independent directors 10. Self-dealing (using firm assets for your own purposes, company jets for personal holidays, etc)

This material is due for review. Couldnt answer nada!

F Me… I got a few of them maybe 30%.

I reviewed this yesterday and still got only 50% right. #2 does not make sense to me - why options is not good compensation tool for non-executives but shares are fine?

gives too much incentive for risk???

that would depend whether options are in- or out-of the money. If they’re in-the-money, they are pretty similar to shares.

#3 doesnt make sense to me. whats the diff between dominated and majority :slight_smile:

This is very helpful. Thank you!

comp_sci_kid, who knows?