ACCA ACCA Corporate Governance 2 — Questions and Answers
Question 1: Which theory of corporate governance suggests that managers (agents) may act in their own interests rather than those of shareholders (principals)?
- Stakeholder theory
- Stewardship theory
- Agency theory (Correct answer)
- Legitimacy theory
Correct answer: Agency theory
Agency theory identifies the conflict of interest that can arise when managers act as agents for shareholders, potentially prioritizing personal gain.
Question 2: What is the main purpose of a nomination committee in a listed company?
- To nominate external auditors
- To recommend new board appointments (Correct answer)
- To determine executive remuneration
- To approve shareholder resolutions
Correct answer: To recommend new board appointments
The nomination committee is responsible for identifying and recommending candidates for board positions to ensure an appropriate balance of skills.
Question 3: In corporate governance, what does the term 'independence' mean when applied to a non-executive director (NED)?
- The NED works full-time for the company
- The NED has no material relationships that could impair judgment (Correct answer)
- The NED is not paid for their services
- The NED holds shares in the company
Correct answer: The NED has no material relationships that could impair judgment
An independent NED is one who has no relationships or circumstances that could affect their ability to exercise objective, unbiased judgment.
Question 4: Which of the following is NOT typically considered a responsibility of the board of directors?
- Setting strategic direction
- Ensuring adequate internal controls
- Day-to-day operational management (Correct answer)
- Approving major transactions
Correct answer: Day-to-day operational management
Day-to-day operational management is delegated to executive management, while the board focuses on strategy, oversight, and governance.
Question 5: What is 'tunneling' in the context of corporate governance?
- A method of transferring funds between subsidiaries legally
- Expropriation of company assets by controlling shareholders for personal benefit (Correct answer)
- A technique to reduce tax liabilities through offshore structures
- A process for fast-tracking board decisions
Correct answer: Expropriation of company assets by controlling shareholders for personal benefit
Tunneling refers to the illegal transfer of assets or profits from a company to its controlling shareholders, harming minority investors.
Question 6: According to ACCA's governance principles, what is the purpose of a remuneration committee?
- To set salaries for all company employees
- To determine fees for external advisors
- To set executive director pay independently of management influence (Correct answer)
- To approve dividend payments to shareholders
Correct answer: To set executive director pay independently of management influence
The remuneration committee sets executive pay packages independently, helping to prevent executives from setting their own excessive remuneration.
ACCA ACCA Corporate Governance 2
Which theory of corporate governance suggests that managers (agents) may act in their own interests rather than those of shareholders (principals)?