From the perspective of the public, the primary job of the board of directors is  to closely monitor

the actions of management.

The relationship among the board of directors, top management, and shareholders is referred to as
corporate governance.

The requirements of a board of directors vary significantly by country and by state; however, there is
a developing consensus as to what the major responsibilities should be. Which of the following is not
one of the responsibilities? becoming directly involved in managerial decisions

Which of the following statements is not true regarding the board of directors?  More than half of
all publicly traded companies in the United States are incorporated in New York, requiring that the
corporation be managed in accordance with NY state laws.

More than ________ of outside directors surveyed said that they had been named as part of a lawsuit
against the corporation. 40%

A careless director or directors can be held personally liable for harm done to the corporation if they
failed to act with  due care.

Which of the following is not a task of the board of directors in strategic management?  to
implement

Catalyst-level boards of directors typically  take leading roles in establishing and modifying the
company mission, objectives, and strategy

A highly involved board does all of the following EXCEPT  manage the everyday operations of the
organization

The ________ boards typically never initiate or determine strategy unless a crisis occurs rubber stamp

According to the text, most publicly owned large corporations today tend to have boards with what
degree of involvement in the strategic management process?  nominal to active

What percentage of public corporations have periodic board meetings devoted primarily to the review
of overall strategy? 74%

When a board of directors is involved to a limited degree in the performance or review of selected key
decisions, indicators, or programs of management, the degree of involvement is referred to as
nominal participation
The board of directors has an obligation to approve all decisions that might affect the longrun
performance of the corporation. Answer: TRUE

The term "corporate governance" refers to the relationship among the board of directors, top
management, and the shareholders in determining the direction and performance of the corporation.
Answer: TRUE

The more active professional boards are being replaced by the board as a rubber stamp of the CEO.
Answer: FALSE

Succession planning for the board and top management team is one of the five responsibilities of the
board of directors Answer: TRUE

Those directors who fail to act with due care and allow the corporation to be harmed may be held
personally liable. Answer: TRUE

A 2011 McKinsey and Company survey found that less than ten percent of a board's time is spent on
current strategy Answer: FALSE

The lowest degree of involvement for a board of directors is the catalyst level of interaction. Answer:
FALSE

Generally, the smaller the corporation, the less active is its board of directors. Answer: TRUE

What are the responsibilities of the board of directors?  Answer: The five board of directors'
responsibilities are 1. Effective board leadership, including the processes, makeup and output of the
board 2. Strategy of the organization 3. Risk vs. initiative and the overall risk profile of the organization
4. Succession planning for the board and top management team 5. Sustainability

Explain the continuum of board involvement.  Answer: The board of directors' continuum reflects the
degree of involvement (from high to low) in the strategic management process. Boards can range from
phantom boards with no real involvement to catalyst boards with a very high degree of involvement.
Passive phantom or rubber stamp boards typically never initiate or determine strategy unless a crisis
occurs.
Nominal participation reflects a board involved to a limited degree in the performance or review of
selected key decisions, indicators, or programs of management. An active board approves, questions,
and makes final decisions on mission, strategy, policies, and objectives. It also has active board
committees and performs fiscal and management audits. The catalyst board takes the leading role in
establishing and modifying the mission, objectives, strategy, and policies. It also has a very active
strategy committee.

Outside directors are defined as  individuals on the board who are not employed by the board's
corporation

According to ________ theory, ________ directors tend to identify with the corporation and its success.
stewardship; inside

Surveys of large U.S. and Canadian corporations found outsiders make up what percentage of total
board membership?  80%

The percentage of directors of small, publicly held U.S. corporations who are outsiders is approximately
 20 - 40%.

The theory which states that problems arise in corporations because top management no longer is
willing to bear the brunt of their decisions unless they own a substantial amount of stock in the
corporation is called  agency theory

Research reveals that the likelihood of a firm engaging in illegal behavior or being sued declineswith
the addition of outsiders on the board.

The average board member of a U.S. Fortune 500 firm serves on ________ board(s). 3

Board members who are not employed by the corporation, but handle the legal or insurance needs of
the firm and are thus not true "outsiders," are what kind of directors?  affiliated directors

Sixty-six percent of the outstanding stock in the largest U.S. and UK corporations is now owned by
institutional investors

________ theory argues that senior executives over time tend to view the corporation as an extension
of themselves. Stewardship
An agency problem can occur when  the desires and objectives of the owners and agents conflict

Which of the following regions is the most globalized region of the world in terms of boards of directors
with most companies having one or more non-national directors?  Europe

Korn/Ferry International reported that amongst the 100 largest companies listed in 2011 ________ of
boards of directors had at least one female director 96%

A study by Korn/Ferry found that ________ of U.S. boards of directors had at least one ethnic minority
member in 2007  78%

The vast majority of inside directors are from all of the following EXCEPT  lower-level operating
employee

Codetermination  is the inclusion of a corporation's employees on its board.

Which country pioneered the use of worker participation on corporate boards?  Germany

Under what circumstances does a DIRECT interlocking directorate exist?  occurs when two firms share
a director or when an executive of one firm sits on the board of a second firm

Under what circumstances does an INDIRECT interlocking directorate exist?  when two corporations
have directors who serve on the board of a third firm

The U.S. Clayton Act and the Banking Act of 1933  prohibit interlocking directorates by U.S. companies
competing in the same industry

Which of the following is not descriptive of interlocking directorates?  Interlocking directorates are
more common in small, family-owned companies.

The function of a nominating committee is to  find outside board members for election by the
stockholders.
The percentage of large U.S. corporations using nominating committees to identify potential new
directors is approximately  97%

A staggered board  has only a portion of the board stand for election each year.

All of the following reflect survey findings of the reasons for which individuals serve on a board EXCEPT
willing to always agree with executive decisions.

The average large, publicly held U.S. corporation has around  10 directors

What percent of boards now have truly independent chairs?  approximately 30%

A lead director creates a balance of power when the CEO is also Chair of the Board.

All of the following are true of the dual chair/CEO position EXCEPTfirms with a dual chair/CEO role
have significantly better stock performance.

The concept of the lead director originated in  the United Kingdom

According to the text, which of the following is not a typical standing committee of boards of directors?
public relations committee

Outside directors may be executives of other firms but are not employees of the board's corporation.
Answer: TRUE

Population theory states that problems arise in corporations because the agents (top management) are
not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the
corporation.  Answer: FALSE

Agency theory suggests that the majority of a board needs to be from outside the firm.  Answer: TRUE

Stewardship theory proposes insiders (senior leadership) tend to identify with the corporation and its
success.  Answer: TRUE
A minority percentage of large corporations in the Americas and Europe may keep the firm's recently
retired CEO on the board after retirement since there is a greater likelihood of a conflict of interest and
less objectivity.  Answer: TRUE

The majority of outside directors are active or retired CEOs and COOs of other corporations. Answer:
TRUE

Codetermination has been used in Germany since the 1950s, but has not been used in the United States.
Answer: FALSE

A direct interlocking directorate occurs when two corporations have directors who also serve on the
board of a third firm.  Answer: FALSE

Interlocking directorates are a useful method for gaining both inside information about an uncertain
environment and objective expertise about potential strategies and tactics. They are, however,
increasingly frowned upon because of the possibility of collusion. Answer: TRUE

While 97% of large U.S. corporations now use nominating committees to identify potential directors, this
practice is not as common in Europe. Answer: TRUE

A survey of directors of U.S. corporations found that the main reason individuals serve on a board is for
the compensation. Answer: FALSE

By 2012, 56% of the S&P 500 boards had split the role of chairperson and CEO. Answer: TRUE

The combined chairperson/CEO position is being increasingly criticized because of the potential for
conflict of interest. Answer: TRUE

Contrast agency theory and stewardship theory.  Answer: Agency theory states that problems arise in
corporations because the agents (top management) are not willing to bear responsibility for their
decisions unless they own a substantial amount of stock in the corporation. The theory suggests that a
majority of a board needs to be from outside the firm so that top management is prevented from acting
selfishly to the detriment of the shareholders. Stewardship theory proposed that, because of their long
tenure with the corporation, insiders (senior executives) tend to identify with the corporation and its
success. Rather than use the firm for their own ends, these executives are thus most interested in
guaranteeing the continued life and success of the corporation.
Explain the difference between a direct and indirect interlocking directorate. Answer: A direct
interlocking directorate occurs when two firms share a director or when an executive of one firm sits on
the board of a second firm. An indirect interlock occurs when two corporations have directors who also
serve on the board of a third firm.

Why is the use of the combined Chair/CEO role being increasingly criticized? Answer: The use of the
combined Chair/CEO role is increasingly criticized because of the potential for conflict of interest. The
CEO is supposed to concentrate on strategy, planning, external relations, and responsibility to the board.
The Chairman's responsibility is to ensure that the board and its committees perform their functions as
stated in the board's charter. Critics of having one person in both roles ask how the board can properly
oversee top management if the Chairman is also a part of top management.

The New York Stock Exchange (NYSE) requires corporations to have  an audit committee composed
entirely of independent, outside members.

The Sarbanes-Oxley Act was designed to protect  shareholders from the excesses and failed oversight
of firms.

In implementing the Sarbanes-Oxley Act, the SEC required in 2003 that a company disclose  if it has
adopted a code of ethics that applied to the CEO and the CFO.

Which of the following is not one of the four major issues researched by the S&P Corporate Governance
Scoring System?  research and development initiatives

The role of the board of directors in the strategic management of the corporation is likely to be more
active in the future.

A benefit of the increased disclosure requirements of the Sarbanes-Oxley Act has been more reliable
corporate financial statements. Answer: TRUE

The SEC requires that the audit, nominating, and compensation committees be staffed entirely by
outside directors. Answer: TRUE
Explain the impact of the Sarbanes-Oxley Act on corporate governance.  Answer: In response to the
many scandals uncovered since 2000, the U.S. Congress passed the Sarbanes-Oxley Act (SOX) in June
2002. This act was designed to protect shareholders from the excesses and failed oversight that
characterized failures at Enron, Tyco, WorldCom, Adelphia Communications, Qwest, and Global
Crossing, among other prominent firms. Several key elements of Sarbanes-Oxley were designed to
formalize greater board independence and oversight. For example, the act required that all directors
serving on the audit committees be independent of the firm and receive no fees other than for services
as a director. Additionally, boards may no longer grant loans to corporate officers. The act also
established formal procedures for individuals to report incidents of questionable accounting or auditing.
Firms are prohibited from retaliating against anyone reporting wrong doing. Both the CEO and CFO must
certify the corporation's financial information. The act banned auditors from providing both external
and internal audit services to the same company. The bill also required that firms identify whether they
have a "financial expert" serving on the audit committee, which is independent from management.

Which of the following is not a trend in corporate governance expected to continue?  Boards are
getting larger.

Which of the following is a trend in corporate governance?  Boards are establishing mandatory
retirement ages for board members.

The role of the board of directors in reviewing, evaluating, and shaping corporate strategy is likely to be
less active in the future.  Answer: FALSE

Society increasingly expects corporate boards to balance the economic goal of profitability with the
social needs of society. Answer: TRUE

When calculating a "deserved pay" for CEOs based upon earnings growth and shareholder return,
financial research firm Obermatt found that  there is no correlation in the 100 S&P companies
between CEO pay and company performance.

All of the following are true of overconfident CEOs EXCEPT  overconfident CEOs were less likely to
make an acquisition when they could avoid selling new stock to finance them.

According to the text, one of the primary responsibilities of top management in strategic management is
 providing executive leadership.
Which of the following provides an example of a transformational leader? A) Phil Knight at Nike has
energized his corporation and commanded respect. B) Louis Gerstner proposed a new vision for IBM to
change its business model from computer hardware to services. C) Microsoft CEO, Steve Ballmer,
crawled under tables to plug in PC monitors and diagnosed problems with an operating system. D)
Verizon Communications CEO Ivan Seidenberg showed his faith in his people by letting his key managers
handle important projects and represent the company in public forums. E) all of the above

A description of what the company is capable of becoming is referred to as strategic vision

Individuals such as Phil Knight at Nike and Steve Jobs at Apple who energized their companies and
provided change and movement by providing a vision for that change are known as  transformational
leaders.

Which of the following is not a key characteristic of transformational executive leaders?  The CEO
energizes the board to formulate strategy. E) The CEO articulates a strategic vision for the corporation.

According to the research, in turbulent environments, the best type of planning is top-down strategic
planning

According to a survey of 156 large corporations, in what percentage of the firms were strategies first
proposed in business units and then sent to headquarters for approval? 66%

For many large corporations the typical strategic planning staff has just fewer than how many people?--
>10

The confidence levels of executive leaders may blind them to information that is contrary to a decided
course of action; this may help to understand why overconfident CEOs are more likely to conduct
mergers and acquisitions. Answer: TRUE

Executive leadership is the directing of activities toward the accomplishment of corporate objectives.
Answer: TRUE

Transformational leaders transform organizations from market leaders in one industry to market
leadership in another. Answer: FALSE
The negative side of confident executive leaders is that their very confidence may lead to hubris, in
which their confidence blinds them to information that is contrary to a decided course of action.
Answer: TRUE

Jeff Bezos, CEO of Amazon.com, uses the S team (senior management) to engage in continuous strategic
planning. Answer: TRUE

Usually, the strategic planning staff is charged with supporting only top management in the strategic
planning process.  Answer: FALSE

What are the responsibilities of top management?  Answer: Top management responsibilities involve
getting things accomplished through and with others to meet the corporate objectives. Top
management's job is multidimensional and oriented toward the welfare of the total organization.
Specific top management tasks vary from firm-tofirm and developed from an analysis of the mission,
objectives, strategies, and key activities of the corporation. Tasks are typically divided among the
members of the top management team. The CEO, with the support of the rest of the top management
team, must successfully handle two primary responsibilities crucial to the effective strategic
management of the corporation: (1) provide executive leadership and a strategic vision, and (2) manage
the strategic planning process.