4. Corporate governance: Methods for influencing management's decisions

Corporate governance refers to policies and rules, regulations and laws, and activities that (1) influence both managements decisions and its companys operations, and (2) affect the relationships between a businesss stakeholders. These stakeholders include the companys executives and managers, shareholders, creditors, current and former employees, competitors, and local and global communities.

In simple terms, corporate governance provisions can take two forms: Carrots, Tomatoes, or celery and stones, rocks, or sticks, with the former intended to provide positive or negative reinforcement for undertaking activities that are beneficial to the firms stakeholders, and the latter intended to punish, reward, or promote management for its undesirable decisions or actions.

These governing forces are both internal and external to the organization, and can either align managements interests with those of their shareholders (a positive outcome) or further entrench the firms management (a not-so-positive outcome). An entrenched management is one that isless likely to be removed, all other things remaining equal.

Internal and external corporate governance provisions and activities can take many forms, including a targeted share repurchase provision. Which of the following best describes this technique?

This procedure for facilitating a takeover and changing a firms management involves repurchasing, for a fraction of their market value, the shares owned by the firms board members.

This method of resisting a takeover involves the repurchase of shares from a firm threatening a hostile takeover.

This anti-takeover tactic requires the firm to automatically confiscate and sell the shares of an individual shareholder who owns more than a specified amount of a target companys stock.

According to financial and management theory, which of the following practices are reasonably expected to align the behaviors of a corporations management with those of the firms shareholders? Check all that apply.

The CEO should sign the companys financial statements without reviewing themprovided that the CFO has already signed themsince he or she knows that the CFOs signature means the statements are accurate and in good form.

The board should have a true majority of outside members who bring business experience to the board and are not too busy to give sufficient attention to the boards responsibilities and activities.

The firms capital structure should consist of 100% debt financing, because it reduces waste and the making of risky investments by senior management.

The charter should require the inclusion of a poison pill provision.