1. Codes of business ethics and conduct can be effective substitutes for moral principles, character, and culture of individuals and organizations

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TRUE

FALSE

2. A mission statement is a legal document describing an organizations reasons for existence and its goals

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TRUE

FALSE

3. A compliance culture can be promoted through the establishment of a centralized:

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Chief executive officer.

Chief governance officer.

Chief compliance officer.

Board of directors

4. The primary mission of a public company is to:

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Make money now without planning for the future.

Keep management happy.

Create sustainable and enduring corporate value.

Remain idle and complacent with current performance.

5. The number and size of board committees depend on the number of directors on the companys board

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TRUE

FALSE

6. A proper evaluation process selected by the compensation committee to assess the performance of directors does not depend on the independence of the board from the CEO and corporate governance structure.

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TRUE

FALSE

7. One of the most important attributes of audit committees for NPOs is that all members of the committee should be independent

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TRUE

FALSE

8. Which of the following are considered to be the second-tier stakeholders in the company?

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Lenders and creditors.

b. Customers and suppliers.

c. Shareholders.

d. Governmental oversight bodies (e.g., PCAOB, SEC).

9. The audit committee is composed of officers and committee chairs that can act on behalf of the entire board between board meetings if circumstances require

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TRUE

FALSE

10. Corporate governance structure

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varies a great deal across countries.

has become homogenized following the integration of capital markets.

has become homogenized due to cross-listing of shares of many public corporations.

none of the above

11. The primary mission of public companies is regarded as:

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Reporting increasing revenues.

Decreasing unemployment rates.

Creating sustainable and enduring value.

Decreasing costs.

12. The primary stakeholders are:

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Customers.

Suppliers.

Shareholders.

Creditors

13. The move toward majority voting for the election of directors has received a tremendous amount of attention and support from institutional investors on the grounds

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TRUE

FALSE

14. Which of the following is not crucial to the integrity and efficiency of capital markets and economic growth?

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Sustainability and financial health of public companies.

Public trust.

High stock prices.

Investor confidence

15. Not-for-profit organizations are tax-free entities that benefit from zero taxes on all generated revenue

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TRUE

FALSE

16. The elements of a multiple bottom line (MBL) approach are economic, social, ethical, and:

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Equity.

Environmental.

Eccentricity.

None of the above

17. The second tier of the stakeholder hierarchy consists of all of the following except:

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Creditors.

Employees.

Shareholders.

Suppliers

18. A special committee of independent directors may be formed to conduct an independent investigation if director and officer wrongdoings are alleged

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TRUE

FALSE

19. The purpose of executive evaluation is to identify areas of concern and poor executive performance.

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TRUE

FALSE

20. The dominant view is that the executives have considerable influence over the design and amount of their own pay, which enables them to extract rents.

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TRUE

FALSE

21. Executive compensation should be linked to performance, be established and approved by the management of the company, and be given the advisory approval of the CEO

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TRUE

FALSE

22. The nominating committee is responsible for establishing director and executive pay designed to set compensation contracts that retain good directors and managers while motivating optimal performance that creates shareholder value

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TRUE

FALSE

23. Many tragedies and scandals are directly related to the ethical behavior of individuals involved and their activities.

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TRUE

FALSE

24. In a public company with diffused ownership, the board of directors is entrusted with

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monitoring the auditors and safeguarding the interests of shareholders.

monitoring the shareholders and safeguarding the interests of management.

monitoring the management and safeguarding the interests of shareholders.

none of the above

25. Multiple-bottom-lines focus on:

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Improving internal control over financial reporting.

Enhancing organizational disclosures concerned with social, environmental, and ethical issues.

Creating and sustaining effective corporate structure.

Reporting on the many ventures in which the organization is involved.

26. The ultimate responsibility for maintaining an appropriate balance between management and the owners rests with:

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Board of directors.

Managers.

Shareholders.

Regulating entities.

27. The improvement of corporate governance and financial reporting by SOX should add the following benefits except:

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Improved investor confidence.

Increased firm value.

Decreased cost of capital.

Increased audit fees.

28. Public companies are required to comply with all of the following except:

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Government laws and regulations.

Listing standards of their respective exchange.

Best practices of leading competitors.

All of the above require compliance.

29. The key weakness of the public corporation is

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too many shareholders, which makes it difficult to make corporate decision.

relatively high corporate income tax rates.

conflicts of interest between managers and shareholders.

conflicts of interests between shareholders and bondholders.

30. The monitoring function is exercised by shareholders (and particularly institutional shareholders who are empowered to elect, and if warranted, remove directors)

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TRUE

FALSE

31. When managerial self-dealings are excessive and left unchecked,

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they can have serious negative effects on share values.

they can impede the proper functions of capital markets.

they can impede such measures as GDP growth.

all of the above

32. An advantage of a corporation is:

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Limited liability for the owners.

Unlimited life of the corporation.

Ease of transferability of ownership interests.

All are advantages of a corporation.

33. Finance committee responsibilities include developing, approving, monitoring, and disclosing the companys executive pay philosophy

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TRUE

FALSE

34. To be effective, the compensation committee should be independent from management

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TRUE

FALSE

35. The internal control system of NPOs should ensure that appropriated funds are spent on the designated programs

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TRUE

FALSE

36. The use of majority voting as opposed to cumulative voting substantially reduces the ability and influence of shareholders over who is actually elected to the board

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TRUE

FALSE

37. Investors should rely on which of the following to make rational, informed investment decisions?

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Accurate financial statements and reports.

Former employees.

Internet blogs and message boards.

Insider information

38. Shareholders own corporations and the ______________ is elected to make business decisions on behalf of shareholders.

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Chief executive officer.

Board of directors.

Chief compliance officer.

Legal counsel.

39. The CEO, as representative of investors, has direct authority and responsibility to govern business affairs and is accountable to investors for the companys strategic performance

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TRUE

FALSE

40. Risk management assessment and internal controls play an important role in the success of private companies and NPOs

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TRUE

FALSE

41. The remuneration of nonexecutive directors should be determined by the chair of the board and executive directors

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TRUE

FALSE

42. The governance committee is usually responsible for identifying, evaluating, and nominating a new director to the board.

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TRUE

FALSE

43. The advisory board of an NPO typically provides advice, gives counsel, and engages in governing the organization

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TRUE

FALSE

44. The oversight function is granted to the board of directors with the fiduciary duty of overseeing management in the best interests of the company and its shareholders

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TRUE

FALSE

45. Transparency means that the company is not hiding relevant information, and disclosures are fair, accurate, reliable, and understandable by average stakeholders

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TRUE

FALSE

46. Effective corporate governance does all of the following except:

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Ensure corporate accountability.

Enhance the integrity and efficiency of the capital market.

Eliminate the prospect of fraud within an organization.

Enhance the reliability and quality of public financial information.

47. The directors or trustees of NPOs are typically volunteers or appointed by the sponsoring organization

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TRUE

FALSE

48. The managerial function is given to the board of directors in order to run the company and manage its resources and operations

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TRUE

FALSE

49. Tax is imposed on tax-exempt organizations for the revenue generated from engagement in a trade or business unrelated to their philanthropic purposes

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TRUE

FALSE

50. A proper evaluation process selected by the compensation committee to assess the performance of directors does not depend on the independence of the board from the CEO and corporate governance structure

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TRUE

FALSE