Corporate Governance - Final Exam Study Guide 2022
with complete solution
What is the concept of systematic risk as it relates to corporate governance regulation
of financial institutions? -Answer- Systemic risk refer
...
Corporate Governance - Final Exam Study Guide 2022
with complete solution
What is the concept of systematic risk as it relates to corporate governance regulation
of financial institutions? -Answer- Systemic risk refers to the fact that the largest
financial service institutions -- if they fail -- then the entire financial system is at risk of
collapse
What is the concept of externality as referring to corporate social responsibility? -
Answer- A cost to a third party such as society at large in the sale of a product or
service of a corporation where the added cost to society was not part of that sale price.
One example often given is the sale of tobacco products and the societal cost of cancer
health care burdens on states health care systems.
What is the definition of greenmail(see book index)? -Answer- Involves an investor
rapidly acquiring a block of shares (typically more than 5%) of a company hoping that
management - if a takeover is threatened - will buy the shares from the investor at a
large profit
What is the definition of a spinoff? -Answer- Sells parts of a corporation such as a
division or subsidiary to a new group of investors who tries to improve its value by
reorganizing it.
What is the definition and structure of a hedge fund (see index of book)? -Answer- a
hedge fund is a fund that investors put their money into. The managers of the fund
select investments on behalf of the investors that the managers hope will increase in
value more than the stock market as a whole. These days hedge fund managers will
buy shares of firms with poor corporate governance or operations and hope to improve
the value of the firm to make money for their clients. The term "hedge" comes from the
physical HEDGE in a garden which is there as a kind of protection against risk. The
original idea is that these funds would give an investor protection from the typical risks
in the stock market, another way to make money, by using active investment managers,
and thus we see the term "hedge the risk."
What is the definition of privatization of a company? -Answer- The transfer of
ownership, property or business from the government to the private sector is termed
privatization. The government ceases to be the owner of the entity or business. The
process in which a publicly-traded company is taken over by a few people is also called
privatization.
Why were corporate governance standard scorecards were developed by the market? -
Answer- They were developed in order to help institutional investors get a simple less
complicated assessment of principal-agent/corporate governance problems at
corporations so that they could thoughtfully exercise their votes at shareholder
meetings.What does the major ratings firms provide recommendations on? -Answer- Look at
financial highlights of the company, the structure and functioning and independence of
the board, and board independence, the audit function, protection of shareholder rights,
and executive compensation.
What are the traditional arguments made for the "lighter touch: approach of the SEC in
recent decades -Answer- The "light touch" and "do not kill the goose that lays the
golden egg" approach to corporate governance by the US SEC before Enron refers to
broad agreement across political spectrum that over-regulation of corporate governance
might dampen competition in the market and restrain economic prosperity.
What are the issues on the current shareholder nomination reform of the SEC which
has been a Congressional priority as expressed in the recent financial reform law and
was recently and successfully challenged in court? -Answer- a. Congressional priority
as expressed in the recent financial reform law and was recently and successfully
challenged in court.
b. Well, the issue is that from the point of view of shareholders/investors, there is a
desire to reform the old system where there were non-competitive board elections and
there were only ten candidates put up for a ten person board and those candidates
were nominated by the old board. So the shareholder nomination reform of the SEC
pushed by President GW Bush and President B Obama would have allowed a group of
shareholders who held a minimum percentage of stock to add one or two (depending on
the details of different proposals) board nominees not selected by management so that
there would be a real choice between investor and management candidates. Many
executives consider this introducing too many wild cards into the boardroom.
What are the main features of the two main systems: Anglo vs French? -Answer- The
common law system formed by judges responding to specific legal disputes and based
on precedents, originated in england, and has the strongest protections for investors,
shareholders, and creditors. The civil law system comes from roman law, is based on
contributions by scholars affected the french, german, and scandinavian systems (and
countries they conquered or had connections with), and has the weakest protections for
investors.
What are the principal features of the German system? -Answer- Key features of the
german system of corporate small public stock market, large role for banks, weak SEC,
and employee representation on the supervisory board with them electing an inside
management board.
What are the principal features of the Japanese system? -Answer- Most of the wealth in
closely-held firms, a few large combinations (keiretsu) control many firms, governance
is by consensus of managers, banks play a huge role in these combinations, weaken
SEC body.Why do most takeovers take place in the UK in the US in terms of characteristics of
their corporate governance system? -Answer- Most large companies are traded on their
public stock markets which means quick easy public access to the shares of any
company. In these countries, less corrupt courts respecting the rule of law are more
objective about takeovers and potential acquirers can borrow money from investment
banks, pension funds, Or hedge funds to finance the transactions to acquire sales.
What are major corporate governance issues in China as a result of the European
Union report on China? -Answer- Repeated investigations of corporate governance in
China have identified lack of independence of corporate board directors and poor audit
procedures as serious problems
What are the requirements ERISA puts on institutional investors as shareholders? -
Answer- To manage the shares they own exclusively for the benefit of workers who will
get pensions
What is ERISA? -Answer- is a Federal law governing all pensions and requires them to
manage the shares they own exclusively for the benefit of workers who will get the
pensions;
What is the role of hedge funds in corporate governance (see hedge fund section in the
book)? -Answer- Hedge funds sometimes use an investment strategy that says that
they can challenge corporate practices and corporate business strategies using activist
pressure on management and boards to ultimately improve their investments value
What are the role unions as managers of pension plans play in corporate governance? -
Answer- Unions hire investment managers for pension funds that unions maintain for
their retiring members.
What are the main issues in the case on the conflict between Robert monks and Sears?
-Answer- Monks did not want sears to keep buying other companies not related to their
main department store purpose. He wanted them to sell these divisions.
What is the country of Norway's initiative on active corporate governance, and why? -
Answer- Norway uses its oil revenues to invest in a pension fund that invests in the
stock markets worldwide. The income from these investments is there to help support
the budget of the people of Norway. Obviously, they want to keep the principal-agent
problems to a minimum so they are very active in corporate governance and
shareholder rights worldwide.
Why are private and public pension funds have not turned
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