1. Corporate Governance

Corporate Governance

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Topic Material

Corporate Governance Law (Intro)

Understanding Business Governance


Topic Study Outline

Introduction to Corporate Governance
Corporate governance concerns the procedures and mechanisms associated with administering a business entity.

For further written and video explanation, discussion and practice questions, see Corporate Governance Law (Intro)

What is “Business Governance”?
  • Actions and controls placed on business entity stakeholders.
  • Federal and State law, industry regulations, and internal procedures

For further written and video explanation, discussion and practice questions, see What is "business governance"?

Who are the “Members” of a Corporation?
  • Shareholders,
  • Directors
  • Officers
  • Employees.

For further written and video explanation, discussion and practice questions, see Who are the members of a corporation?

What is a “Closely-Held” Corporation
  • Small group of owners or shareholders.
  • Owners elect themselves as directors and officers.
  • Shareholders have limited fiduciary duties to the corporation.
  • Minority shareholder little influence.

For further written and video explanation, discussion and practice questions, see What is a closely-held corporation?

What is a “Private Company”?
  • Private Company
  • Public Company
    • Reporting Company
  • Going Private

For further written and video explanation, discussion and practice questions, see What is a "private company" vs a "public company"?

What is the role and purpose of the corporation?
  • Collective business practice
  • Productivity, Efficiency
  • Divisible Ownership

For further written and video explanation, discussion and practice questions, see What is the role and purpose of the corporation?

What is “Agency Theory”?
  • Corp acts on behalf of shareholders
  • Imputes duties on corporation

For further written and video explanation, discussion and practice questions, see What is the "agency theory" of corporate governance?

What is “Stakeholder Theory”?
  • All interested parties of Corporation
  • Greater number of interests

For further written and video explanation, discussion and practice questions, see What is the "stakeholder theory" of corporate governance?

What are the role and rights of “Shareholders”?
  • Right to Information
  • Right to Vote
    • Election of Directors
      • Proxy contest
      • Cumulative and Straight Voting
    • Fundamental Changes in Corporation
      • Mergers
      • Sale of Assets
      • Dissolution
      • Changes in Governing Documents
        • Amendments to the Charter
        • Amendments to the Bylaws
    • Meeting Rights
      • Right to Make Proposals
    • Right to Dissent

For further written and video explanation of these concepts, discussion and practice questions, see What is the role & rights of "shareholders" in the corporation?

What is the corporate “Ownership Structure”?
  • Common Stock
  • Preferred Stock
  • Dividends
  • Liquidation
  • Voting Rights

For further written and video explanation, discussion and practice questions, see What are the variations on attributes of "ownership structure"?

Shareholder Fiduciary Duties
  • Shareholders do not owe fiduciary duties
  • Exception closely-held corporations

For further written and video explanation, discussion and practice questions, see What are the fiduciary duties owed by shareholders?

Personal Liability of Shareholders - Piercing the Veil
  • Business Formalities
  • Business Assets
  • Business Capitalization
  • Stakeholder Functions

For further written and video explanation, discussion and practice questions, see When is a shareholder personally liable for corporate obligations?

Holding Directors and Officers Liable - Direct and Derivative Actions
  • Direct Actions
  • Shareholder Derivative Suits

For further written and video explanation, discussion and practice questions, see How can shareholder enforce their rights (direct and derivative actions)?

”Derivative Actions”
  • Brought by shareholders
  • Against corporate directors or officers
  • On behalf of corporation.
  • Proceed go to corp.
  • Board must agree, or
  • Demand Futile - Plaintiff show board violates business judgment rule (bad faith or conflict of interest)
  • Special litigation committee - controls unless bad faith.

For further written and video explanation, discussion and practice questions, see What is the process for bringing a "derivative action"?

“Corporate Proxies”
  • Unanimous written consent vs. shareholder meeting.
  • “Proxy”
  • Not required to solicit proxies
  • Used to obtain a quorum
  • Proxy statement and an annual report.
  • “Proxy Access Bylaws”

For further written and video explanation, discussion and practice questions, see What are corporate vote "proxies"?

“Shareholder Activism” and “Institutional Investors”
  • Influence or control the actions of the directors or officers of the corporation.
  • Operations, governance, goals or causes, structural changes.
  • Management funds and concentration of power

For further written and video explanation, discussion and practice questions, see What is "shareholder activism" and the significance of "institutional investors"?

Role of the “Board of Directors”?
  • Manage the high-level affairs of the corporation.

For further written and video explanation, discussion and practice questions, see What is the role of the "board of directors"?

Composition of the Board of Directors
  • State Law
  • Internal governance documents
  • Relevant laws:
    • Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
    • Sarbanes-Oxley Act of 2002
    • Securities Exchange Act of 1934
    • Rules of the U S Securities and Exchange Commission
    • Standards of the NYSE and Nasdaq (the “Listing Standards”)
  • “Independent”
  • Director nominating committee
  • Corporate audit committee
  • Executive or director compensation committee

For further written and video explanation, discussion and practice questions, see What is the composition of the board of directors?

Standards Governing Actions of the Board
  • Duty of Care
    • Legality
    • Rational Business Purpose
    • Informed Decision Making
  • Duty of Loyalty
    • Self-Dealing
    • Director Approval
    • Shareholder Approval
    • Fairness
    • Corporate Opportunity
    • Offer to Corporation
    • Not a Corporate Opportunity

For further written and video explanation, discussion and practice questions, see What standards govern the actions of the board of directors?

What is the “Business Judgment Rule?
  • Protects officers and directors from liability for their decision or actions
  • Must act in good faith
  • Raises standard above negligence

For further written and video explanation, discussion and practice questions, see What is the "business judgment rule"?

What is “D&O Insurance”?
  • “Director and officer insurance” (D&O insurance)
  • Indemnification

For further written and video explanation, discussion and practice questions, see What is D&O insurance?

What is the role of “Executives of the Corporation
  • Chief Executive Officer
  • Chief Financial Officer
  • Chief Operating Officer
  • Others

For further written and video explanation, discussion and practice questions, see What is the role of "managers" of the corporation?

What standards govern Executive Actions
  • Fiduciary Duties
  • Business Judgment Rule

For further written and video explanation, discussion and practice questions, see What standards govern manager actions?

State and Federal Corporate Governance Laws
  • State-specific
    • Delaware law and Model Business Corporation Act states),
  • the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rules,
  • the Sarbanes-Oxley Act of 2002, as amended (“SOX”),
  • the Foreign Corrupt Practices Act (“FCPA”)
  • the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”),
  • the corporate governance listing standards of the NYSE and Nasdaq (the “Listing Standards”), and
  • Advisor rules from Proxy Advisory Firms.

For further written and video explanation, discussion and practice questions, see What are the primary state and federal corporate governance laws?

Role of the State in Corporate Governance
  • Model Business Corporations Act (MBCA)
  • Delaware Law
    • Developed Corporate Law
    • Legislative Responsiveness
    • Chancery Court

For further written and video explanation, discussion and practice questions, see What is the role of the state in corporate governance?

Securities Law - Corporate Governance
  • Concerned with corporate compliance.
  • Issuance, sale, or exchange of securities

For further written and video explanation, discussion and practice questions, see What is the role of "securities laws" in corporate governance?

Foreign Corrupt Practices Act – Corporate Governance
  • Illegal to pay incentives or bribes to foreign government and corporate officials
  • Burden on accounting department to report.

For further written and video explanation, discussion and practice questions, see What is the role of the "Foreign Corrupt Practices Act" in corporate governance?

Sarbanes-Oxley Act – Corporate Governance
  • Fairness to Shareholders:
  • Fairness to Stakeholders
  • Heightened Director and Board Responsibilities
  • Director and Officer Ethics
  • Disclosure and Accountability
  • Accounting and Disclosure Procedures
    • The Public Company Accounting Oversight Board (PCAOB)
    • External Auditing Firms
  • Securities Regulations
    • “Whistleblower Protection”

For further written and video explanation, discussion and practice questions, see What is the "Sarbanes-Oxley Act" (SOX) effect on corporate governance?

Dodd-Frank Act – Corporate Governance
  • Proxy Rights
  • Proxy Disclosures
  • Shareholder Voting Rights

For further written and video explanation, discussion and practice questions, see What is the "Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?

Industry Standards Affecting Corporate Governance
  • New York Stock Exchange (“NYSE”) and NASDAQ Stock Market (“NASDAQ”).
  • Rules
    • Director Independence
    • Committees
    • Shareholder Votes
    • Equity Stricture
    • Management Restrictions
    • Public Disclosures

For further written and video explanation, discussion and practice questions, see What industry organization standards affect corporate governance?

Proxy Advisory Firms – Corporate Governance
  • Add information to corporate proxies.
  • Propose governance standards for corporations.
  • Act as check on director action

For further written and video explanation, discussion and practice questions, see How do "proxy advisory firms" affect corporate governance?

Ethics in Corporate Governance
  • Promote fair and honest conduct
  • Openness of information

For further written and video explanation, discussion and practice questions, see What is the role of ethics in corporate governance?

Major Causes of Corporate Governance Issues
  • Access to Information
  • Decision-Making Procedure
  • Competition for Authority
  • Interest and Benefit Misalignment

For further written and video explanation, discussion and practice questions, see What are the major causes of corporate governance issues?

Governance Issues - Shareholder Access to Information
  • Need info about director actions
  • Nominating Committee exacerbates problem
  • Limited proxy access exacerbates problem
  • Difficult to organize into voting blocks

For further written and video explanation, discussion and practice questions, see What are the "access to information" issues?

Governance Issues - Decision-Making Authority
  • Corporate Approvals
  • Capital Distribution
  • Proxy Statements
  • Written Consents
  • Supermajority and Unanimity Requirements

For further written and video explanation, discussion and practice questions, see What are decision-making structure issues?

Governance Issues – Benefit Alignment
  • Officer-Directors
  • Officer-Director Compensation
  • Improper Relationships

For further written and video explanation, discussion and practice questions, see What are benefit-alignment issues?

Governance Issues - Power Struggles
  • Internal Power Struggles
  • Friendly Takeovers
  • Hostile Takeovers

For further written and video explanation, discussion and practice questions, see What are the power struggle or competition issues?

“Hostile Takeovers” and “Defense to Takeover”
Strategies for a Hostile Takeover

  • Tender Offer
  • Proxy Contest
  • Creeping Tender Offer
  • Bear Hug

For further written and video explanation, discussion and practice questions, see What are "hostile takeovers"?

“Shark Repellant” Defenses
  • Staggered Boards
  • Super-majority Voting

For further written and video explanation, discussion and practice questions, see Shark Repellent Defenses?

“Poison Pill” Defenses
  • Preferred Share Issuances
  • Dual Class Recapitalization
  • Employee Stock Ownership Plans

For further written and video explanation, discussion and practice questions, see Poison Pill Defenses?

“Delay-Tactic” Defenses
  • Target Share Repurchase Plans (Greenmail)
  • Standstill Agreements

For further written and video explanation, discussion and practice questions, see Delay-Tactic Defenses?

“Legal Lockup” Defenses
  • Litigation - Through the FTC or SEC
  • Alleging that a merger or takeover violates antitrust or securities laws.

For further written and video explanation, discussion and practice questions, see Legal Lockup Defenses?

“White Knight & Pac Man” Defenses
  • White Knight Defense
  • Pac-Man Defense

For further written and video explanation, discussion and practice questions, see White Knight and Pac Man Defenses?


Flashcard - Study Practice - Part 1

Q1
_______________ concerns the actions and controls placed on those charged with managing a business entity.

Q2
_______________ generally concerns the internal control of a corporation as influenced or controlled by state and federal law, rules of ethics, and industry standards.

Q3
_______________ focuses on the actions of managers and directors and the observance of procedural safeguards of shareholder rights.

Q4
The corporation is made up of ____________

A4
Shareholders, Directors, Officers

Resource Video: https://thebusinessprofessor.com/members-of-a-corporation/

Q5
______________ are the owners of the corporation.

Q6
______________ undertake the high-level management and decision-making for the corporation.

Q7
______________ (and their subordinate employees) run the daily operations of the corporation.

Q8
A ___________________ is owned and controlled by a small group of owners or shareholders.

A8
closely-held corporation

Resource Video: https://thebusinessprofessor.com/closely-held-corporations/

Q9
Often, shareholders in a ____________ will elect themselves to serve as directors and appoint themselves as officers.

A9
closely-held corporation

Resource Video: https://thebusinessprofessor.com/closely-held-corporations/

Q10
In _________________, common law generally holds that majority shareholders have fiduciary duties to exercise care and loyalty with regard to the corporation.

A10
closely-held corporations

Resource Video: https://thebusinessprofessor.com/closely-held-corporations/

Q11
A _______________ is a business whose ownership interest is not openly held or traded by the public at large.

Q12
In a _______________, all ownership interests are acquired via personal transactions with the company or other owners of the company.

Q13
A _______________ is a business whose ownership is openly traded in the market.

Q14
In a ___________________, the ownership interest will be traded on a public “stock exchange”.

Q15
If the shares of a public company are not listed on an exchange, the shares are generally available for purchase through securities brokers in what is known as _____________ transactions.

Q16
Public companies are subject to far more extensive regulation than private companies. This reality often leads public companies to repurchase outstanding shares from the public market in a transaction known as ____________.

Q17
The concept of the corporation originated through governmental charter allowing individuals to carry on business collectively. True or False

Q18
The concept of the corporation as a legal person has expanded over time to the point that corporations enjoy many of the same constitutional protections as US citizens. True or False

Q19
The corporate entity also allows individuals to: _____________________

A19
have a beneficial interest without being actively involved in business operations; use outside capital from investors (rather than just debt or capital contributions from founders) to grow business operations.

Resource Video: https://thebusinessprofessor.com/role-and-purpose-of-corporate-entity-form/

Q20
_____________ posits that corporations act as agents of its shareholders.

Q21
_____________ of corporate governance seeks to align the incentives of officers and directors with those of shareholders.

Q22
The _____________ theory of corporate governance focuses on the effect of corporate activity on all identifiable stakeholders of the corporation.

Q23
_____________ theory posits that corporate managers (officers and directors) should take into consideration the interests of each stakeholder in its governance process.

Q24
Shareholders have neither the right nor the obligation to manage the day-to-day business of the enterprise. True or False

Q25
Common rights afforded corporate shareholders under state law include:

A25
Right to Information; Right to Vote; Meeting Rights; Right to Dissent

Resource Video: https://thebusinessprofessor.com/role-of-shareholders-of-the-corporation/

Q26
Shareholders have the right to access and examine corporate records and information concerning the __________.

A26
governance and financial performance of the entity.

Resource Video: https://thebusinessprofessor.com/role-of-shareholders-of-the-corporation/

Q27
Shareholders of a corporation have the right to vote for:

A27
Election of Directors; Fundamental Changes in the Corporation; Changes in Governing Documents

Resource Video: https://thebusinessprofessor.com/role-of-shareholders-of-the-corporation/

Q28
The names of nominated directors to the board of a corporation are listed on a ____________ and sent to shareholders.

Q29
Under ______________, a director must receive a majority of votes cast to be elected to the board.

Q30
_________________ Is a voting method that allows a common shareholder one vote per share of common stock for each available seat on the board of directors.

Q31
________________ Is a voting method that allows a common shareholder a number of votes equal to her number of shares times the number of director seats available.

Q32
Fundamental changes to a corporation that require shareholder approval include:

A32
Mergers; Sale of Assets; Dissolution; Changes in Governing Documents; Amendments to the Charter; Amendments to the Bylaws

Resource Video: https://thebusinessprofessor.com/role-of-shareholders-of-the-corporation/

Q33
All state corporate statutes (as well as large public exchanges) require corporations to hold annual shareholder meetings. True or False

Q34
The requirement that corporations hold shareholder meetings may be relieved for small corporations that handle these matters through _______________ by the shareholders.

Q35
Directors and large blocks of shareholders may call ____________ for any number of purposes, such as when shareholders must vote upon a fundamental change to the corporation.

Q36
Certain shareholders have the right to propose specific corporate actions to be taken at corporate meetings. True or False

Q37
_________________ are a special group of rights designed to provide protections to shareholders in corporations that are not actively traded in the market. These allow the shareholders to sell their ownership interest back to the company.

Q38
___________________ of the corporation will seek promises from individuals to purchase stock in the corporation once it is fully formed.

Q39
Sometimes the corporation will repurchase shares that have been issued. The repurchased shares are held by the corporation as ________________.

Q40
_________________ is when the corporations often award additional shares to current shareholders as a form of dividend. This has the effect of transferring the value of the stock dividend from the retained earnings to the corporation’s shareholder’s equity or capital account.

Q41
A _______________ effectively doubles the number of outstanding shares and reduces the share value by one half.

Q42
Stock can be divided into categories called

Q43
___________________ is the baseline corporate ownership interest, which generally has voting rights but hold the lowest priority for payment of dividends in the event of distribution or liquidation of the corporation.

Q44
___________________ is issued with the purpose to provide special rights to certain shareholders, such as investors and corporate founders.

Q45
___________________ provide the right to purchase a given quantity of stock at a stated price.

Q46
Common shareholders may receive compensation in the form of _______________ as an entitlement of corporate ownership.

Q47
____________________ Is a common characteristic of common stock where the preferred shareholder will be paid first from the proceeds of any sale or liquidation of the corporation or its assets.

Q48
Generally, shareholders of a corporation owe fiduciary duties to other shareholders. True or False

Q49
Corporate shareholders are generally not liable for the debts or obligations of the corporation, including legal liability for torts or contract actions. True or False

Q50
Under certain circumstances, a court will disregard the corporate protections and hold shareholders personally liable for the debts or obligations of the corporation. This is known as _______________________.

Q51
The theory supporting piercing the corporate veil to make shareholders liable for corporate obligations is known as ____________________.

Q52
In determining whether to pierce the corporate veil of personal liability protection, the court will review the following activity or activities of the corporation:

A52
Business Formalities; Business Assets; Business Capitalization; Stakeholder Functions

Resource Video: https://thebusinessprofessor.com/shareholder-personal-liability-for-corporate-obligations/

Q53
A ____________ shareholder action is where a shareholder directly sue the corporation, an officer, or director if one of these individuals takes actions that result in direct harm to the shareholder.

Q54
A _____________ shareholder action is where the shareholder alleges that the corporation itself was harmed by a defendant’s conduct. Shareholders sue the corporation’s directors or officers, alleging a breach of fiduciary duties of loyalty or care to the corporation. Any damages to the shareholders are indirect through the overall negative impact on the corporation.

Q55
In a derivative action the shareholders act as representative plaintiff for the corporation and sue the __________for their actions resulting in harm to the corporation.

Q56
Shareholder begin the derivative action process by ____________________.

A56
Making a request to the board of directors to bring a legal action against the alleged wrongdoer.

Resource Video: https://thebusinessprofessor.com/shareholder-derivative-action-process/

Q57
Requesting that the board of directors bring a legal action against the alleged wrongdoer causing harm to the corporation is known as ______________.

Q58
Once a shareholder makes demand for legal action by the board against a corporate wrongdoer, the board may:

A58
File suit; Reject the Demand; or Appoint a special litigation committee to make the decision

Resource Video: https://thebusinessprofessor.com/shareholder-derivative-action-process/

Q59
If the board rejects a shareholder makes demand for action against an alleged wrongdoer, the shareholder may sue on behalf of the corporation if:

A59
The board of directors is biased

Resource Video: https://thebusinessprofessor.com/shareholder-derivative-action-process/

Q60
Shareholders may vote their shares by _____________.

A60
written consent; casting their vote at a shareholder meeting

Resource Video: https://thebusinessprofessor.com/corporate-proxies-and-shareholder-votes/

Q61
Shareholders have the right to appoint someone to vote for them at a shareholder meeting. Both the appointed individual and the card that the shareholder signs to appoint the substitute voter are often called a __________.

Q62
The ______________ is used to solicit shareholder response and votes on a particular proposal.

Q63
The requisite number of shareholders at a meeting to hold a vote and take action is known as a _____________.

Q64
________________ refers to the situation where large shareholders of a company exert influence or control over the actions of the directors or officers of the corporation.

Q65
Today, nearly 80% of US stocks are held by ____________.

A65
institutions (mutual funds, pension plans, hedge funds, banks, foundations, endowments, and other investment companies).

Resource Video: https://thebusinessprofessor.com/activist-shareholders-and-institutional-investors/

Q66
What are the responsibilities or duties of the board of directors?

A66
Stay informed of corporate affairs; Act ethically and in good faith; Act as a reasonable person would in the situation; Control high-level corporation decision making; Hire, determine compensation of, and oversee managers; Oversee the process for nominating and electing directors; Review and certify the accuracy of all required corporate reporting.

Resource Video: https://thebusinessprofessor.com/role-of-directors-in-a-corporation/

Q67
The size of the board and the process for electing directors are laid out in either the _________________.

A67
articles of incorporation; bylaws

Resource Video: https://thebusinessprofessor.com/composition-of-board-of-directors/

Q68
Corporate law and governance documents generally requires members of he board of directors to have extensive skill, knowledge, or general competence. True or False

A68
False - There are no requirement for skill, knowledge, or competence.

Resource Video: https://thebusinessprofessor.com/composition-of-board-of-directors/

Q69
The most notable requirement of boards imposed either by law or by exchange rules is that a majority of directors on a board be _____________.

Q70
Committee members (particularly special committee members) must be disinterested in their assigned tasks. True or False

Q71
The required type(s) of corporate committee include(s):

A71
Director Nominating Committee; Corporate Audit Committee; Executive or Director Compensation Committee

Resource Video: https://thebusinessprofessor.com/composition-of-board-of-directors/

Q72
Boards of directors owe fiduciary duties to ________.

A72

Q73
Fiduciary duties include:

A73
a duty to act in good faith in all actions; a duty of loyalty; a duty of care

Resource Video: https://thebusinessprofessor.com/standards-governing-actions-of-corporate-directors/

Q74
The duty of _________ requires officers and directors to act in the best interests of the corporation and to use the same care that an ordinarily prudent person would exercise in a similar situation.

Q75
The duty of care requires that directors make decisions that is/are:

A75
Legal; A Rational Business Decision; Informed

Resource Video: https://thebusinessprofessor.com/standards-governing-actions-of-corporate-directors/

Q76
The duty of _____________ requires that managers have an obligation to act in the best interest of the corporation and without personal conflict of interest.

Q77
The business judgment rule protects directors from liability for self-serving actions. True or False

Q78
A corporate transaction by an officer or director will not be considered self dealing if it is:

A78
Approved by a majority of disinterested directors; Approved by a majority of shareholders; It is fair to the corporation

Resource Video: https://thebusinessprofessor.com/standards-governing-actions-of-corporate-directors/

Q79
The _____________ doctrine prohibits officers, directors, and controlling shareholders from excluding their company from favorable deals.

Q80
A Director may avoid liability to the corporation for usurping a corporate opportunity by showing:

A80
The opportunity was offered to the corporation; or It was not actually a corporate opportunity

Resource Video: https://thebusinessprofessor.com/standards-governing-actions-of-corporate-directors/

Q81
The _________________ is a principle that applies to the standard of care owed by officers and directors acting within the scope of their positions.

Q82
The _________________ applies steps to further protect directors from liability for their decisions or actions if they acted in good faith.

Q83
Many corporations purchase _________________ that provides the corporation (and possibly the director or officer) with indemnification for liability for actions or decisions made in its official capacity.

A83

Q84
______________ control the daily operations of the corporation.

Q85
The single mandatory executive position in all corporations is the ________________.

Q86
Officers of the corporation owe fiduciary duties to the corporation. True or False

Q87
Which of the following is/are state and federal laws or stock exchange rules contributing to corporate governance?

A87
state-specific corporate laws (particularly Delaware law and Model Business Corporation Act states); the Securities Exchange Act of 1934 (’34 Act) and SEC Rules; the Sarbanes-Oxley Act of 2002 (SOX); the Foreign Corrupt Practices Act (FCPA); the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank); the listing standards of the NYSE and NASDAQ; the advisor rules from Proxy Advisory Firms.

Resource Video: https://thebusinessprofessor.com/state-and-federal-corporate-governance-laws/

Q88
_____________ corporate law is the primary law governing corporate governance and operations.

Q89
Many state legislatures, rather than independently drafting corporate statutes, adopt the __________________________ as the default corporate law in that state.

A89
Model Business Corporations Act (MBCA)

Resource Video: https://thebusinessprofessor.com/state-law-and-corporate-governance/

Q90
Corporations often organize in _____________________ with the purpose of availing themselves with Delaware’s corporate governance provisions and court system.

Q91
Delaware allows for several legal benefits that make it a popular choice for companies headquartered in other states, including:

A91
Developed Corporate Law; Legislative Responsiveness; Chancery Court

Resource Video: https://thebusinessprofessor.com/state-law-and-corporate-governance/

Q92
The primary federal securities law controlling issuances of securities is the ________________.

Q93
The primary federal securities law controlling issuances of securities is the ________________.

A93

Q94
_________________ places limitations on the ability of the corporation to pay incentives or bribes to foreign governments and corporate officials to secure business advantages.

Q95
__________________ is the primary federal law regulating markets, brokers, dealers, accounting and auditing, on-going government and shareholder disclosure by reporting companies, insider trading, anti-fraud, proxy regulation and so forth.

Q96
The primary objective(s) of The Sarbanes-Oxely Act (SOX) is/are to promote:

A96
Fairness to Shareholders; Fairness to Stakeholders; Heightened Director and Board Responsibilities; Director and Officer Ethics; Disclosure and Accountability

Resource Video: https://thebusinessprofessor.com/corporate-governance-and-the-sarbanes-oxley-act-sox/

Q97
________________________ imposed extensive controls on banks and other lending institutions,

A97
Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank)

Resource Video: https://thebusinessprofessor.com/corporate-governance-and-the-dodd-frank-act/

Q98
Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank) prescribes corporate governance procedures designed to protect shareholder interests, including:

A98
Proxy Rights; Proxy Disclosures; Shareholder Voting Rights

Resource Video: https://thebusinessprofessor.com/corporate-governance-and-the-dodd-frank-act/

Q99
Public securities exchanges have extensive governance requirements for companies listing securities for sale with the exchange. True or False

Q100
Common governance requirements for companies listing securities for sale with the exchange have rules affecting:

A100
Director Independence; Committees; Shareholder Votes; Equity Structure; Management Restrictions; Public Disclosures

Resource Video: https://thebusinessprofessor.com/corporate-governance-and-industry-standards/


Flashcard - Study Practice - Part 2

Q101
_______________________ propose governance standards for corporations and encourage corporations to adopt and comply with those standards by sending information to all corporate shareholders about the corporation’s governance.

Q102
_________________ are internal measures aimed at ensuring fair and honest conduct by members of the corporation.

A102

Q103
Which of the following is/are (a) primary characteristic(s) of the corporate governance regime causing issues or conflicts between shareholders and the corporation?

A103
Access to Information; Decision-Making Procedure; Competition for Authority; Interest and Benefit Misalignment

Resource Video: https://thebusinessprofessor.com/lack-of-information-and-corporate-governance-issues/

Q104
The lack of shareholder information about the actions and decisions of directors leads to the following situations:

A104
prevents them from making accurate decisions; causes apathy with regard to exercising their voting rights.

Resource Video: https://thebusinessprofessor.com/lack-of-information-and-corporate-governance-issues/

Q105
Which of the following is/are (a) common decision(s) or process(es) that give rise to conflict?

A105
Corporate Approvals; Capital Distribution; Proxy Statements; Written Consents; Supermajority and Unanimity Requirements

Resource Video: https://thebusinessprofessor.com/decision-making-and-corporate-governance-issues/

Q106
A ___________ is where third parties purchase the outstanding shares of corporate stock and thereby gain control of the corporation.

Q107
Which of the following is NOT a step in the friendly takeover of a corporation?

A107
The acquirer may petition the board of directors to accept a takeover bid; The board endorses the offer and submits the proposal to existing shareholders; A majority (or supermajority) of shareholders approve the purchase; The board will repurchase all of the outstanding shares from shareholders at the proposed price.

Resource Video: https://thebusinessprofessor.com/power-struggles-and-corporate-governance-issues/

Q108
A _______________ is where a third-party acquirer seeks to purchase a controlling number of outstanding shares without the endorsement or approval of the target company’s board of directors.

Q109
A _______________ is the primary method of acquiring a controlling share of a corporation’s stock without the approval of the board is done through an open offer to shareholders to purchase shares at a given price.

Q110
A ______________ is a move by a potential acquirer to convince existing shareholders to replace the current directors with directors that support the acquirer’s objectives by placing the name of the acquirer’s proposed director nominee in the shareholder proxy material.

Q111
A ______________ is when an acquirer may begin to slowly acquire corporate shares on the public market. Once the shareholder reaches a sufficient number, it can begin the process of replacing existing directors with directors who will support the acquirer’s objectives.

A111

Q112
A _______________ is a situation where an acquirer offers a purchase price to the board that is far above expected value. The board may be required to accept or endorse the offer in order to meet its obligations to represent the best interest of shareholders.

Q113
_______________ are provisions strengthen the board and make it increasingly difficult for the acquirer to effectuate its plan of replacing current directors.

Q114
Efforts to fend off hostile takeovers through procedural difficulty include:

A114
Shark repellants; Staggered Boards; Super-majority voting

Resource Video: https://thebusinessprofessor.com/hostile-takeover-defense-shark-repellant/

Q115
________________ have the objective of raising the cost of acquisition to the acquirer in hopes of making the acquisition prohibitively expensive.

Q116
Examples of poison pills to ward off hostile takeovers by making it more expensive to do so include:

A116
Preferred Share Issuances; Dual Class Recapitalization; Employee Stock Ownership Plans

Resource Video: https://thebusinessprofessor.com/hostile-takeover-defense-poison-pill/

Q117
A corporation may attempt to ward off a hostile takeover by providing benefits to the acquirer that will incentivize it to give up its efforts. True or False

Q118
___________________ is where the corporation attempts to repurchase of block of shares held by an intended acquirer, and the acquirer heavily profits from the repurchase.

A118
Target Share Repurchase Plans (Greenmail)

Resource Video: https://thebusinessprofessor.com/hostile-takeover-defenses-delay-tactics/

Q119
A _________________ is where the board may offer to pay an acquirer to halt the acquisition of additional shares for a state period of time.

Q120
The corporation will often attempt to halt or delay the acquisition by making it less lucrative to the acquirer or making it illegal under existing law. True or False

Q121
__________________ Is when a corporation attempts to ward off a takeover attempt by acquiring assets that the acquirer does not want or that will create antitrust problems.

Q122
The corporation may seek to ward off a hostile takeover by seeking legal action through the FTC or SEC by ___________.

A122
alleging that a merger or takeover violates antitrust or securities laws.

Resource Video: https://thebusinessprofessor.com/hostile-takeover-defenses-asset-or-liability-tactics/

Q123
A _________________ is a hostile takeover defense where the board endorses acquisition by a different acquirer.

Q124
A _________________ is when the target corporation may seek to acquire the acquirer, if the acquirer is a public corporation with stock available for purchase.

Q125
Officers, directors, and shareholders often have competing interests as stakeholders of the corporation, including:

A125
Where officers are directors; Directors setting officer compensation; Improper relationships between officers and directors

Resource Video: https://thebusinessprofessor.com/alignment-of-benefits-and-corporate-governance-issues/


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