CCB Business Ethics & Corporate Governance 3 — Questions and Answers
Question 1: A company's board has 10 members, 9 of whom are former colleagues of the CEO. This structure primarily raises concerns about:
- Board size exceeding regulatory limits
- Lack of board independence and potential rubber-stamping of management decisions (Correct answer)
- Excessive diversity of viewpoints slowing decision-making
- Non-compliance with SEC disclosure requirements
Correct answer: Lack of board independence and potential rubber-stamping of management decisions
A board dominated by insiders or associates of the CEO lacks independence, undermining its ability to provide objective oversight of management.
Question 2: Under the Foreign Corrupt Practices Act (FCPA), which of the following is explicitly prohibited?
- Paying a foreign official to expedite a routine government action (Correct answer)
- Offering nominal promotional gifts to foreign clients
- Conducting due diligence on foreign business partners
- Reimbursing foreign employees for legitimate travel expenses
Correct answer: Paying a foreign official to expedite a routine government action
The FCPA prohibits bribing foreign government officials, including facilitation payments to expedite routine actions like permits or customs clearance.
Question 3: Which of the following best describes 'stakeholder theory' in business ethics?
- Companies owe duties only to shareholders who own stock
- Companies must balance the interests of all parties affected by their actions, not just shareholders (Correct answer)
- Government regulators are the primary stakeholders in any corporation
- Employees have no stake in corporate governance decisions
Correct answer: Companies must balance the interests of all parties affected by their actions, not just shareholders
Stakeholder theory, associated with R. Edward Freeman, argues corporations must consider employees, customers, communities, and other affected parties—not just shareholders.
Question 4: A whistleblower reports financial fraud internally but the company retaliates by terminating their employment. Under Dodd-Frank, the whistleblower may:
- File a retaliation complaint with the SEC and seek reinstatement and back pay (Correct answer)
- Only pursue remedies through the company's internal HR process
- Report the retaliation to the IRS for tax fraud investigation
- Sue only if they can prove the fraud exceeded $1 million in damages
Correct answer: File a retaliation complaint with the SEC and seek reinstatement and back pay
Dodd-Frank provides strong anti-retaliation protections for SEC whistleblowers, including the right to file complaints and receive reinstatement and financial remedies.
Question 5: The concept of 'materiality' in corporate disclosure ethics means:
- All information must be disclosed regardless of its significance
- Only information that a reasonable investor would consider important in making decisions must be disclosed (Correct answer)
- Material goods and assets must be reported separately from financial instruments
- Only information exceeding $100,000 in value is required to be disclosed
Correct answer: Only information that a reasonable investor would consider important in making decisions must be disclosed
Material information is information a reasonable investor would likely consider important when making investment decisions, and must be timely disclosed.
Question 6: A compliance officer learns that a division head has been falsifying expense reports but is also the company's top revenue generator. The ethical response is:
- Overlook the violation given the executive's value to the company
- Apply the same disciplinary process used for any other employee (Correct answer)
- Transfer the executive to a role with fewer expense privileges
- Conduct a confidential review only if the amounts exceed $10,000
Correct answer: Apply the same disciplinary process used for any other employee
Ethical governance requires consistent application of policies regardless of an individual's status or contribution to company revenue.
Question 7: Which board committee has primary responsibility for overseeing the integrity of financial reporting and the relationship with external auditors?
- Compensation committee
- Nominating and governance committee
- Audit committee (Correct answer)
- Risk management committee
Correct answer: Audit committee
The audit committee oversees financial reporting integrity, internal controls, and the engagement and independence of external auditors.
CCB Business Ethics & Corporate Governance 3
A company's board has 10 members, 9 of whom are former colleagues of the CEO.
This structure primarily raises concerns about: