Question 1

The most perplexing issue with regard to the authority of officers is whether an officer has _____ authority merely by virtue of the title of his office.

Accepted Answer

Inherent authority refers to the power and authority that is inherent in certain positions or roles, regardless of the specific powers or limitations spelled out in laws or regulations. In other words, an officer may have certain powers simply by virtue of holding a particular position or title, without needing any additional authorization or permission.

Question 2

The proxy solicitation process usually results in:

Accepted Answer

Management's solicitation of proxies may produce a result quite different from the theory of corporate management that directors serve as representatives of the shareholders.The CEO usually nominates directors of his choice,and they are almost always elected.

Question 3

Rules of the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD), which apply to firms listed on the NYSE or NASDAQ, require that independent directors approve _____ committee nominations.

Accepted Answer

The answer of Rules of the New York Stock Exchange...

Question 4

Many corporation statutes, unlike the MBCA, state that the same person may not hold the offices of _____ and _____.

Accepted Answer

Many corporation statutes state that the same person may not hold the offices of president and secretary.

Question 5

A supermajority vote is rarely required to:

Accepted Answer

Deciding with which suppliers the corporation should deal is a routine business decision and does not typically require a supermajority vote. The other options may have more significant impacts on the corporation and, therefore, may require a supermajority vote.

Question 6

Directors meetings:

Accepted Answer

Directors meetings require a minimum number of directors to attend, called a quorum, in order for decisions to be made.

Question 7

What was the original purpose of staggered terms?

Accepted Answer

The original purpose of staggered terms was to permit continuity of management. By staggering the terms of directors, the corporation can ensure that there is always a body of experienced directors who are familiar with the company's operations and can provide continuity of management.

Question 8

What is meant by rational basis?

Accepted Answer

Rational basis refers to a decision-making standard that requires a logical connection between the facts and the decision made. It means that the decision must be based on reason and not arbitrary or discriminatory. Consent of all board members or a long discussion are not necessarily indicators of rational basis. Protracted negotiations may be a factor in some cases but are not a defining characteristic of a decision made with rational basis.

Question 9

Passive investors follow the _____ rule: Either support management or sell the shares.

Accepted Answer

Passive investors follow the Wall Street rule: Either support management or sell the shares.

Question 10

Which of the following is correct concerning the management of close corporations?

Accepted Answer

The MBCA Statutory Close Corporation Supplement grants the shareholders unlimited power to restrict the discretion of the board of directors.

Question 11

Who amongst the following owes a fiduciary duty to the corporation?

Accepted Answer

Directors owe a fiduciary duty to the corporation, which means they must act in the best interest of the corporation and not their own personal interests. Employees do not owe a fiduciary duty, although they do have a duty to act in good faith and with loyalty to the company. Shareholders do not owe a fiduciary duty, but they do have an interest in the financial success of the corporation. The secretary of state has no direct relationship with the corporation and does not owe a fiduciary duty.

Question 12

The _____ requires periodic shareholder approval of executive compensation.

Accepted Answer

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires periodic shareholder approval of executive compensation as part of its goal to increase transparency and accountability in corporate governance. The other options listed do not pertain to executive compensation.

Question 13

The board of directors of a nonprofit corporation must have at least _____ director(s).

Accepted Answer

The board of directors of a nonprofit corporation must have at least three directors.

Question 14

According to several state statutes including the California statute, what is the least number of directors required to form the board of directors?

Accepted Answer

Several state statutes,including the California statute,require at least three directors,unless there are fewer than three shareholders,in which case the corporation may have no fewer directors than it has shareholders.

Question 15

_____ voting may permit minority shareholders to obtain representation on the board of directors.

Accepted Answer

Cumulative voting allows shareholders to concentrate their votes on one or a few candidates, which could potentially result in minority shareholders electing a representative to the board of directors. This is not possible with straight voting or ranked voting. Preference voting is not relevant to electing board members.

Question 16

Under the business judgment rule, corporate managers:

Accepted Answer

The business judgment rule requires that corporate managers make informed decisions and act in good faith based on what they believe to be in the best interests of the corporation. This means that they must have a reasonable basis for their decisions and cannot simply rely on personal preferences or biases. Conflicts of interest are allowed as long as they are disclosed and proper procedures are followed to address them. Corporate managers are expected to make reasonable investigations and consider all relevant factors before making a decision. However, they are also allowed to make mistakes as long as they are not the result of bad faith, self-dealing, or gross negligence. Corporate managers who are also shareholders are allowed to benefit from their actions as long as they do not violate their fiduciary duties to the corporation.

Question 17

_____ voting permits a holder of more than 50 percent of the shares of a corporation to dominate the corporation.

Accepted Answer

Straight voting allows the majority shareholder to exercise control over the corporation by giving them the power to elect a majority of the board of directors. In contrast, cumulative voting allows shareholders to concentrate their votes on fewer candidates, which may result in greater representation of minority interests on the board. Preference and ranked voting are not typically used in corporate voting.

Question 18

The person who is designated to vote on behalf of the shareholder is called a(n):

Accepted Answer

The person designated to vote on behalf of the shareholder is called a proxy. A proxy is a person who is authorized by a shareholder to vote on their behalf at a company's annual meeting or other important corporate events.

Question 19

Which of the following committees of a board of directors reviews and approves salaries of high-level corporate executives?

Accepted Answer

The Compensation committee is responsible for reviewing and approving executive compensation packages. The Executive committee is responsible for making strategic decisions and overseeing the overall operation of the company. The Nomination committee is responsible for identifying and nominating potential candidates for board membership. The Audit committee is responsible for reviewing financial statements and ensuring compliance with laws and regulations.

Question 20

What is the standard applied to examine managers' duty of care?

Accepted Answer

The standard applied to examine managers' duty of care is the care expected from an ordinarily prudent person in similar circumstances. This standard takes into account the fact that managers are not required to possess extraordinary skills or knowledge but are expected to act in a reasonable and responsible manner.

Quiz 43: Management of Corporations