Chapters 5

Successful completion of this homework requires students to read the assigned chapters carefully and completely. Please answer each question fully, addressing to all parts of the questions to earn complete points from each question.

This homework is an independent and individual work of each student. Any consistent similarities in answers will be treated as cheating and will not be tolerated. All parties involved in the cheating will receive 0 as a grade from the homework.

Please read Chapter 5 and answer the following questions based on your understanding of the chapter.

1. A. Define corporate governance and identify its 3 major parties.

B. Define each term and explain the role of each in an organization's corporate governance:

• Board of directors
• Audit committee
• Compensation committee
• Corporate governance committee

1. Read the Frontline Cases (Incriminating Evidence) in pages 86 and 98answer its 3 + 3 = 6 questions with your justifications.

Page 86:

1. Which committee would have granted stock options to the senior management of Chemco Industries? ReviewFigure 5.1for more information on this.
2. The e-mail suggests that the CEO was well aware of what was going on at Chemco Industries. Do you think the board of directors was aware of the activities of senior management? Which committee would be responsible for monitoring ethical practices at Chemco?
3. What should Marco do now?

Page 98:

1. What could Marco have done differently?
2. What do you think will happen now?
3. What will be the consequences for Marco, David Collins, and Chemco Industries?

1. Please answer the following questions:
   1. What are the six steps to effective corporate governance?
   2. Select your top 5 from Walter Salmon's "22 Questions for Diagnosing Your Board" (page 94) and explain/defend why you picked these 5 over the other ones.
   3. Read the paragraphs under the title" The Dangers of a Corporate Governance Checklist" (page 97) state 4 important flaws in Enron's corporate governance.
   4. Provide three examples of evidence that good governance pays off in organizations.