ACCA SP Corporate Governance 2 — Questions and Answers
Question 1: Which type of director is typically employed full-time by the company and directly responsible for its day-to-day management?
- Non-executive director
- Shadow director
- Executive director (Correct answer)
- Independent director
Correct answer: Executive director
Executive directors are employed full-time by the company and are directly involved in managing its operations on a day-to-day basis.
Question 2: What is the primary purpose of a remuneration committee in a listed company?
- To determine the salaries of all permanent employees
- To set the remuneration packages of executive directors (Correct answer)
- To allocate bonuses to non-executive directors
- To manage the company's employee pension fund
Correct answer: To set the remuneration packages of executive directors
The remuneration committee sets executive director remuneration packages to ensure they are appropriate, fair, and aligned with long-term company performance.
Question 3: In the context of corporate governance, what does the principle of 'transparency' primarily require of companies?
- Publishing all internal management accounts publicly each quarter
- Disclosing material information to stakeholders in a timely and accurate manner (Correct answer)
- Allowing all shareholders to attend board and committee meetings
- Sharing commercially sensitive data with key competitors
Correct answer: Disclosing material information to stakeholders in a timely and accurate manner
Transparency requires companies to disclose material and relevant information to stakeholders accurately and in a timely manner, enabling informed decision-making.
Question 4: Which of the following is a key characteristic that distinguishes an independent non-executive director from other directors?
- They are employed full-time by the company on a fixed-term contract
- They have no material relationship with the company that could affect their judgement (Correct answer)
- They are appointed exclusively by the company's major institutional shareholders
- They chair all of the company's board committees simultaneously
Correct answer: They have no material relationship with the company that could affect their judgement
Independence requires that non-executive directors have no material business, financial, or personal relationship with the company that could compromise their objective judgement.
Question 5: Which corporate governance problem arises when a single individual dominates the board and overrides the checks and balances of governance structures?
- Insider trading risk
- The dominant personality problem (Correct answer)
- Audit committee failure
- Dividend manipulation risk
Correct answer: The dominant personality problem
The dominant personality problem occurs when one individual's excessive power within a company undermines governance checks and balances, as seen in high-profile corporate failures.
Question 6: What is the primary role of the Senior Independent Director (SID) under the UK Corporate Governance Code?
- To replace the Chairman at all scheduled board meetings when unavailable
- To be available to shareholders as an alternative contact point to the Chairman (Correct answer)
- To chair all board committees on a rotating basis
- To act as the primary liaison between the board and external auditors
Correct answer: To be available to shareholders as an alternative contact point to the Chairman
The Senior Independent Director provides shareholders with an alternative channel to raise concerns when the normal route through the Chairman or CEO is inappropriate.
Question 7: Which theory suggests that directors should act as responsible stewards of company assets, naturally aligning with shareholders' long-term interests?
- Agency theory
- Stakeholder theory
- Stewardship theory (Correct answer)
- Transaction cost theory
Correct answer: Stewardship theory
Stewardship theory holds that managers are motivated stewards whose interests are aligned with those of shareholders, contrasting with agency theory's assumption of self-interest.
ACCA SP Corporate Governance 2
Which type of director is typically employed full-time by the company and directly responsible for its day-to-day management?