Corporate Governance

Executive Comp

100

This is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentive compensation, such as stock awards and options

What is Executive Compensation

200

In this way, the exercise price of the granted option can be set at a lower price than that of the company's stock at the granting date. This process makes the granted option in-the-money and of value to the holder

What is option backdating

300

The use of these compensation packages theoretically help firms cope with or avoid potential agency problems by linking managerial wealth to the wealth of common shareholders

What are "long-term incentive plans"

Board of Directors

100

This type of board member grouping includes active top-level managers in the corporation who are elected to the board because they are a source of information about the firm's day-to-day operations

What are "insiders"

200

This type of board member grouping include individuals who maintain some relationship with the firm, contractual or otherwise, that may create questions about their independence, but these individuals are not involved with the corporation's day-to-day activities

What are "related outsiders"

300

A Board of Directors for a US manufacturing company decides to make a change to enhance their effectiveness. They add a top manager from a prominent Japanese engineering firm. What is the board trying to accomplish, i.e. what classification of change would this be considered

What is "increasing the diversity of the backgrounds of board members"

Ownership Concentration

100

Corporate pension funds, college endowments and insurance companies are all examples of this, as they control large block shareholder positions

What are "Institutional Owners"

200

This bill was enacted in 2002, in response to a number of major corporate and accounting scandals and covers issues such as auditor independence, corporate governance and internal control assessments

What is "Sarbanes Oxley Act"

300

Ownership concentration is associated with lower levels of diversification, particularly this reason for diversification, where managers are concerned with increased compensation and reduced managerial risk

What is "Value Reducing Diversification"

The Real World

100

This companies stock are more threatened by its ability to hold off competitors than its recent loss of its well known former CEO

What is "Apple"

200

This mail order company doubled its CEO’s annual salary to $5.5 Million in 2010. If you “Reed” about them today they are not doing so good

What is "Netflix"

300

This strangely named ruler of the web doesn't pay its board of directors a cash salary. External directors get expenses reimbursed and stock options awarded. Three external directors got nothing for their service in 2006.

What is "Google"

400

This companies board of directors include executives from Disney, First Manhattan, Comcast, and Intel

What is "Berkshire Hathaway"