CCB Business Ethics & Corporate Governance 2 — Questions and Answers
Question 1: A board member discovers that a major supplier is violating environmental regulations but the violations reduce costs significantly. What is the most ethically sound course of action?
- Continue using the supplier since it benefits shareholders
- Report the violations to regulators and end the supplier relationship (Correct answer)
- Negotiate with the supplier to internalize the violations
- Disclose the situation only to senior management and take no further action
Correct answer: Report the violations to regulators and end the supplier relationship
Ethical corporate governance requires reporting legal violations and ceasing relationships with non-compliant suppliers, regardless of cost benefits.
Question 2: Which governance mechanism most directly aligns executive compensation with long-term shareholder value?
- Fixed annual salary increases tied to tenure
- Equity-based compensation with multi-year vesting schedules (Correct answer)
- Quarterly cash bonuses based on short-term earnings
- Expense account allowances tied to travel costs
Correct answer: Equity-based compensation with multi-year vesting schedules
Equity compensation with vesting schedules incentivizes executives to focus on sustainable long-term performance rather than short-term gains.
Question 3: The 'say on pay' shareholder vote required under Dodd-Frank is best described as:
- A binding vote that directly sets executive salaries
- An advisory vote allowing shareholders to express views on executive compensation (Correct answer)
- A regulatory mandate requiring all companies to cap CEO pay
- A requirement for board members to disclose their own compensation
Correct answer: An advisory vote allowing shareholders to express views on executive compensation
Say on pay votes are advisory and non-binding, giving shareholders a voice on executive compensation packages without legal authority to override board decisions.
Question 4: A company's audit committee is considering hiring the CFO's former employer as the external auditor. Which ethical concern does this raise?
- Conflict of interest that compromises auditor independence (Correct answer)
- Violation of the Sarbanes-Oxley mandatory rotation rule
- A breach of the business judgment rule
- Unnecessary duplication of internal audit functions
Correct answer: Conflict of interest that compromises auditor independence
Hiring an auditor connected to the CFO creates a conflict of interest that undermines the independence essential to objective financial oversight.
Question 5: Which ethical theory holds that the morality of an action is determined solely by its consequences and overall utility?
- Deontological ethics
- Virtue ethics
- Utilitarianism (Correct answer)
- Social contract theory
Correct answer: Utilitarianism
Utilitarianism judges actions based on their outcomes, specifically whether they maximize overall happiness or utility for the greatest number.
Question 6: A corporation's code of conduct prohibits accepting gifts over $50, but a sales executive receives a $200 gift card from a key client during a holiday. The best immediate action is:
- Keep the gift card since it was a holiday gesture with no strings attached
- Report the gift to the compliance department and follow policy on returning or donating it (Correct answer)
- Use the gift card but disclose it at the next performance review
- Ask the client for a receipt to expense the difference
Correct answer: Report the gift to the compliance department and follow policy on returning or donating it
Employees must report gifts that exceed policy thresholds and follow established procedures, even when intent appears innocent.
Question 7: The principle of 'tone at the top' in corporate governance refers to:
- The decibel level permitted in executive meetings
- Senior leadership modeling ethical behavior and setting the cultural standard for the organization (Correct answer)
- The requirement for CEOs to deliver annual ethics speeches
- Board committees setting compensation benchmarks above market rate
Correct answer: Senior leadership modeling ethical behavior and setting the cultural standard for the organization
Tone at the top means senior leaders demonstrate ethical conduct through their own behavior, which cascades through the organizational culture.
CCB Business Ethics & Corporate Governance 2
A board member discovers that a major supplier is violating environmental regulations but the violations reduce costs significantly.
What is the most ethically sound course of action?