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Corporate governance refers to policies and rules, regulations and laws, and activities that (1) influence both management's decisions and its company's operations, and (2) affect the relationships between a business's stakeholders. These stakeholders include the company's 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: and , with the former intended to provide reinforcement for undertaking activities that are beneficial to the firm's stakeholders, and the latter intended to management for its undesirable decisions or actions. These governing forces are both internal and external to the organization, and can either align management's interests with those of their shareholders (a positive outcome) or further entrench the firm's management (a not-so-positive outcome). An entrenched management is one that is likely to be removed, all other things remaining equal. Internal and external corporate governance provisions and activities can take many forms, including the use of interlocking board members. Which of the following best describes this practice? This practice requires that all members of a firm's board of directors be elected in each election. In this situation, a firm's CEO also serves as the chairperson of the board and personally selects all of the members of the firm's board. In this situation, a board member of one firm also serves as a member of another firm's board or on its management team. If you were designing the composition and acceptable practices for the board of directors of a new corporation, which of the following practices would you suggest be implemented? Yes, recommend implementation No, do not recommend implementation Suggested Practice The board should recommend that the company keep financial records and report financial statements that are in compliance with generally accepted accounting standards. O The company's charter should prohibit the use of targeted share repurchases. O O The ratio of outside to inside board members should be one outside member for every four inside members. O Oo Senior management's cash bonuses should be tied solely to the firm's short-term operating profit performance. O Corporate governance refers to policies and rules, regulations and laws, and activities that (1) influence both management's decisions and its company's operations, and (2) affect the relationships between a business's stakeholders. These stakeholders include the company's 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: and , with the former intended to provide reinforcement for undertaking activities that are beneficial to the firm's stakeholders, and the latter intended to management for its undesirable decisions or actions. These governing forces are both internal and external to the organization, and can either align management's interests with those of their shareholders (a positive outcome) or further entrench the firm's management (a not-so-positive outcome). An entrenched management is one that is likely to be removed, all other things remaining equal. Internal and external corporate governance provisions and activities can take many forms, including the use of interlocking board members. Which of the following best describes this practice? This practice requires that all members of a firm's board of directors be elected in each election. In this situation, a firm's CEO also serves as the chairperson of the board and personally selects all of the members of the firm's board. In this situation, a board member of one firm also serves as a member of another firm's board or on its management team. If you were designing the composition and acceptable practices for the board of directors of a new corporation, which of the following practices would you suggest be implemented? Yes, recommend implementation No, do not recommend implementation Suggested Practice The board should recommend that the company keep financial records and report financial statements that are in compliance with generally accepted accounting standards. O The company's charter should prohibit the use of targeted share repurchases. O O The ratio of outside to inside board members should be one outside member for every four inside members. O Oo Senior management's cash bonuses should be tied solely to the firm's short-term operating profit performance. O

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