Mgst 493

Front 1

Group think?

Back 1

Ignore alternatives and results in poor decisions

Front 2

Directors must be...

Back 2

Qualified and independent

Front 3

Role of the Board Chair

Back 3

Foster open climate for decision making. Support dissenters, introduce external expertise and assigning critical evaluator

Front 4

Directors' roles:

1. As a group? (2 roles)

2. As individuals?

Back 4

1. Provide oversight/stewardship and set strategy. Also hiring the right CEO.

2. Support and counsel the CEO

Front 5

Governing law for Canadian Corporations?

Back 5

Canadian Business Corporations Act

Front 6

Role of shareholders?

Back 6

Elect Directors and appoint auditors. Little say in day-to-day operations

Front 7

Role of auditors?

Back 7

Provide opinion on financial statements

Front 8

What is agency relationship?

Back 8

Arrangement in which one entity legally appoints another to act on its behalf

Front 9

Primary agency relationship for financials is between...?

Back 9

Managers and shareholders

Front 10

What is the agency problem?

Back 10

When management is motivated by self-interest rather than maximizing shareholder value.

Front 11

What is a fiduciary duty?

Back 11

Legal and ethical responsibility owed

Front 12

Who do Directors owe fiduciary duty to?

Back 12

The company, not the shareholders

Front 13

What is duty of care?

Back 13

Directors must exercise care, diligence, and skills that a prudent person would

Front 14

During bankruptcy, what are Directors personally responsible for?

Back 14

Wages and taxes owing

Front 15

What is right of reliance?

Back 15

Directors can rely on auditors and lawyers' advice

Front 16

What is business judgement rule?

Back 16

Courts will not hold Boards responsible for decisions with bad outcomes if they can demonstrate that they followed good processes and exercised good business judgement.

Directors must act prudently and independently. Taking time to make decisions

Front 17

How can Directors minimize liability?

Back 17

By documenting internal controls, camera sessions with consultants, and taking field trips to see company facilities

Front 18

What protects Directors from legal action?

Back 18

Bylaws, indemnification agreements, and Directors & Officers insurance

Front 19

Generally speaking, how should board members act with the company's operations?

Back 19

"Nose in, fingers out"

Front 20

In what case might Directors have to get involved in day-to-day operations?

Back 20

Insolvency

Front 21

What are companies required to "comply or explain"?

Back 21

Gender diversity on the board (women)

Front 22

Who is the strategy guru?

Back 22

Michael Porter

Front 23

According to the strategy guru, how can a company outperform its rivals?

Back 23

By delivering greater value or comparable value at a lower price. Cost vs. Differentiation.

Front 24

What is strategic positioning?

Back 24

Performing different activities from competitors

Front 25

What is operational effectiveness?

Back 25

Performing similar activities to competitors better

Front 26

What results from performing similar activities more effectively than competitors?

Back 26

Cost advantage

Front 27

What program should companies consider that respond to environmental sustainability?

Back 27

Corporate Social Responsbility

Front 28

What license do companies need to operate?

Back 28

Social license

Front 29

What are the triple bottom line factors?

Back 29

Economic, social, and environmental

Front 30

CSR programs can be either...?

Back 30

Responsive or strategic

Front 31

What is the board's talent management function?

Back 31

Ongoing evaluation of CEO's performance, succession planning, and reviewing other prospective leaders in company

Front 32

Who can be included in the CEO's evaluation process?

Back 32

The CEO, direct reports, or board members

Front 33

Who should lead CEO's evaluation?

Back 33

Human Resources and compensation committee

Front 34

When should CEO evaluation begin and end?

Back 34

Begin the day he/she is hired and ongoing

Front 35

What should the CEO evaluation include?

Back 35

Quantitative measures: ROA, cost/ton, and lost-time accidents

Qualitative: leadership and motivation

Front 36

Who does the board approve compensation for?

Back 36

The CEO, senior executives, and succession planning

Front 37

What is the Human Resources and Compensation Committee responsible for?

Back 37

Reviewing HR strategy, approving compensation for senior executives, and approving amendments to the peer group

Front 38

What should peer groups be similar in?

Back 38

Size, industry, and geographic location

Front 39

What performance measures should be included in a compensation plan?

Back 39

Financial, operating, and marketing metrics

Front 40

What does short-term compensation consist of?

Back 40

Salary and bonus

Front 41

What does long-term compensation consist of?

Back 41

Stock options, deferred shares, and pension plans

Front 42

Senior Executives are also entitled to...?

Back 42

SERP - Supplementary Executive Retirement Plan

Front 43

What is say-on-pay?

Back 43

Shareholders can vote on compensation. Just advisory.

Front 44

Aside from compensation, what else should HR and Compensation Committees discuss about?

Back 44

Human Capital

Front 45

Compensation oversight is provided by whom?

Back 45

Regulators (like Securities and Exchange Commission) and influencers (like Canadian Coalition for Good Governance)

Front 46

What compensation structure should be utilized to align management and shareholder interests?

Back 46

Performance based compensation

Front 47

Who provides guidance on ethical principles?

Back 47

Board of Directors

Front 48

Agency cost?

Back 48

The extent that management deviates from shareholders' best interests

Front 49

Why should Directors and Officers not enter into arrangements in which they have personal interest?

Back 49

Conflict of interest

Front 50

How does strategic positioning arise?

Back 50

Choice of activities and the way in which they are performed

Front 51

What can CSR programs address?

Back 51

Generic social issues that would apply to everybody, the impact of the entire value chain on society, as well as social dimensions of a competitive context

Front 52

What should the board approve for the CEO?

Back 52

Target pay and performance levels

Front 53

What are management's responsibilities?

Back 53

Design salary and incentive plans, to implement retention plans for senior executives, and to provide oversight of corporate culture and employee engagement

Front 54

What happens if performance based pay is successful?

Back 54

It reduces company's cost of capital

Front 55

Purpose of ERM program?

Back 55

Optimize enterprise value

Front 56

Besides the obvious legal and financial risks,an ERM program should take into account...

Back 56

Security, reputation and politics

Front 57

In order to mitigate risk, companies should identify...?

Back 57

· thelikelihood of occurrence of various risk factors, and the size of any potentialloss.

Front 58

Once risk factors have been identified...?

Back 58

· T they canbe retained without mitigation if appropriate, reduced through emergencypreparedness or transferred by buying insurance.

Front 59

What could an effective ERM program do?

Back 59

Increase company's credit rating and reduce cost of capital

Front 60

What does a company's risk capacity depend on?

Back 60

type of industry, the type of assets, and itssize.

Front 61

Responsibility for ERM could be centralized in...?

Back 61

· a Chief RiskOfficer or diffused throughout the organization

Front 62

Members of the Audit Committee should be...?

Back 62

Financially literate

Front 63

Chair of the Audit Committee should be an...?

Back 63

Accountant

Front 64

What is the audit committee responsible for?

Back 64

· ensuringthat there are appropriate internal controls and risk management, as well as forfinancial reporting and the external audit.

Front 65

When is revenue typically only recorded?

Back 65

When there is an exchange of goods or services for cash

Front 66

When is revenue recognized?

Back 66

When delivery has occurred (services have been rendered), when the price is fixed or determinable, and when collectability is reasonably assured

Front 67

What problems arise when companies are forced to restate their financial statements?

Back 67

Investors made investment decisions on previous figures and calls company's credibility into question

Front 68

Restatements can arise because of..

Back 68

aggressive accounting (Livent case), intentional deception (enron) or honest error

Front 69

What must the audit committee understand?

Back 69

processesand controls that management is using.

Front 70

What happens if an error creeps into the financial statements?

Back 70

Due diligence defense - directors must be able to show that theyconducted a reasonable investigation of the document before it was released tothe public.

Front 71

What does the fraud triangle include?

Back 71

motive, opportunity, rationalization

Front 72

What causes fraudulent misconduct?

Back 72

Pressure to meet business targets, lack of resources and cutting corners, or by employees' fear of losing their jobs (Knowlton Realty)

Front 73

How can fraud be reduced/eliminated?

Back 73

Developing written policies and procedures, and creating a culture of honesty in the company

Front 74

How can a culture of honesty be created?

Back 74

Maintaining positive workplace environment and taking action in response to actual or suspected fraud

Front 75

Where should employees who suspect fraud report it?

Back 75

Supervisor, legal department or ethics hotline

Front 76

What kind of companies have an anonymous reporting mechanism or whistleblower hotline?

Back 76

Progressive companies

Front 77

Who is responsible for detecting fraud?

Back 77

Everyone. Audit committee, auditor and management

Front 78

What is the response to an incidence of fraud?

Back 78

Investigation and remediation if appropriate

Front 79

What is the best defense to unwanted takeover?

Back 79

Maintain the company's financial independence - keep debt manageable

Front 80

How should companies be prepared for a possible takeover?

Back 80

Identify strategic buyers in advance

Front 81

What should a company do when a legitimate takeover offer is received?

Back 81

1. Convene a special meeting of the board and probably create a special committee - one that is independent of management

2. Develop a plan to communicate with major shareholders

Front 82

How should companies be valued?

Back 82

Using discounted cash flow models. In a pinch, look at peer group earnings or cash flow multiples

Front 83

What is the final step when a company is successful in making a takeover offer?

Back 83

Take up and pay for shares that have been tendered

Front 84

What is the role of the board in takeover situations?

Back 84

Get the best value possible under the circumstances

Front 85

What does Roger Martin think about using compensation to align management and shareholders?

Back 85

It's not working. Recommends focusing on customers first (shareholders last), and letting results speak for themselves over a period of time

Front 86

Whom does corporate governance also apply to?

Back 86

Crown and family-owned corporations, community and professional associations, post-secondary institutions and not-for-profit organizations

Front 87

What characteristics do good directors need?

Back 87

experience and good judgment, understand difference between role of board (oversight) and role of management (implementation)

Front 88

Who does an effective board work closely with?

Back 88

Management, but maintains independence

Front 89

What should you do before you join the board of a corporation?

Back 89

Ask lots of questions and make sure you're satisfied with the answers

Front 90

When should you resign from the board of a company?

Back 90

When it is on the verge of bankruptcy or when you feel that you no longer make a positive contribution

Front 91

What should you do if you resign from a board and feel that there was some legal or ethical challenge facing the company and they were not addressing it?

Back 91

Make a public statement

Front 92

What is your responsibility as a director?

Back 92

Tone at the top