CHAPTER 1
CORPORATE GOVERNANCE
SOLUTIONS
1. C is correct. Corporate governance is the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome the conflicts of interest inherent in the corporate form.
2. B is correct. Members of the board of directors serve as agents for the owners, the shareholders, a mechanism designed to represent the investors and to ensure that their interests are being well-served. An effective corporate governance system helps ensure that directors are aligned with shareholders’ interests rather than management’s interests.
3. A is correct. The board of directors has the responsibility to establish long-term strategic objectives for the company with a goal of ensuring that the best interests of shareholders come first and that the company’s obligations to others are met in a timely and complete manner.
4. C is correct. Flagging items such as egregious use of insider transactions is least likely to be useful in assessing the quality of the corporate governance system. While egregious use of insider transactions is problematic, financial disclosures and related notes in regulatory filings are the source for analysts in researching such transactions.
5. C is correct. The objectives of an effective corporate governance system do not include ensuring complete transparency in disclosures regarding operations, performance, risk, and financial position. This is an attribute of an effective ...
