Question

1. You are a candidate to head the Securities Exchange Commission, with a mission of improving corporate governance and market efficiency. The following multiple-choice questions (with one choice allowed per question) will be used to assess your fit. a. If you have an effective and good corporate governance system, which of the following consequences would you expect?

i. All companies will be well managed.

ii. Top managers will be fired more frequently at all firms.

iii. Top managers will never be fired.

iv. Top managers at badly managed companies will be fired more frequently.

v. Top managers at well-managed companies will be fired more frequently.

2. One long-standing issue in corporate governance is that many stockholders at publicly traded companies never return their filled-in proxies and that incumbent managers get these unreturned proxy votes. Which of the following actions would you take to remedy this problem (and improved corporate accountability)?

i. Ban all proxy voting. Only shareholders present at meetings can cast votes.

ii. Count all unreturned proxies as votes against management.

iii. Count all unreturned proxies as votes for management.

iv. Count only returned proxies as votes and not count unreturned proxies.

v. Require all shareholders, by law, to return their proxies.

Answer 1

1. If you have an effective and good corporate governance system, it automatically comes to mean that all companies are well managed. It also means that a company needs to take care of the interest of the investors and maintain their confidence. This includes effective management by any means and seeing to it that all companies are well managed. Hence the answer to this is (i).

2. Accountability is an important aspect in maintaining an efficient corporate governance. This can be achieved only when individual shareholders can be held accountable to the decisions being taken within the company. Banning proxy voting is definitely not a solution. Also, imposing strict meanings on proxy voting won't do any good until returning proxies are seen as being important by the shareholders. Law can play an important role here. So, the answer to go with is (v)