CCB Business Ethics & Corporate Governance 4 — Questions and Answers
Question 1: Corporate social responsibility (CSR) initiatives are BEST justified from a governance perspective when they:
- Are mandated by government regulation
- Create long-term value for the company while benefiting stakeholders (Correct answer)
- Maximize publicity and media coverage for the company
- Are funded exclusively by surplus profits with no budget allocation
Correct answer: Create long-term value for the company while benefiting stakeholders
Effective CSR aligns business strategy with stakeholder benefit, creating sustainable competitive advantages and reputational value.
Question 2: A publicly traded company's CEO trades company stock one day before the firm announces a major acquisition. This behavior is best characterized as:
- Legal because the CEO owns the company's stock outright
- Insider trading, which violates securities law and ethical standards (Correct answer)
- Permissible under a 10b5-1 plan if pre-scheduled
- Only illegal if the trade exceeds $500,000
Correct answer: Insider trading, which violates securities law and ethical standards
Trading on material non-public information, such as an unannounced acquisition, constitutes insider trading and violates both securities law and fiduciary duty.
Question 3: Which of the following is a characteristic of a strong ethical organizational culture?
- Employees are discouraged from reporting concerns to avoid legal exposure
- Ethical behavior is formally incentivized and violations are consistently punished (Correct answer)
- Ethics training is conducted once at onboarding with no follow-up
- The compliance department operates independently with no board oversight
Correct answer: Ethical behavior is formally incentivized and violations are consistently punished
A strong ethical culture reinforces desired behavior through positive incentives and consistent consequences for violations.
Question 4: The 'business judgment rule' primarily protects directors who:
- Make decisions that result in financial losses despite acting in good faith and on an informed basis (Correct answer)
- Engage in self-dealing transactions that benefit the company
- Fail to attend board meetings but delegate to trusted managers
- Approve transactions they have a material financial interest in
Correct answer: Make decisions that result in financial losses despite acting in good faith and on an informed basis
The business judgment rule shields directors from liability for losses if they acted in good faith, on an informed basis, and in the honest belief that the action was in the company's best interest.
Question 5: A company operating in a country with no anti-corruption laws bribes local officials to win a government contract. From an ethical standpoint:
- The bribery is acceptable because local law permits it
- The bribery is unethical because ethical standards transcend local legal requirements (Correct answer)
- The company should disclose the bribery in its annual report and move on
- Only the local officials bear ethical responsibility for accepting the bribe
Correct answer: The bribery is unethical because ethical standards transcend local legal requirements
Ethical conduct is not defined solely by local law; universal ethical principles and home-country laws like the FCPA apply even where local laws are absent.
Question 6: Which of the following is the PRIMARY purpose of separating the roles of CEO and board chair?
- To reduce executive compensation costs
- To ensure independent oversight of management by the board (Correct answer)
- To comply with mandatory SEC structural requirements
- To distribute workload between two senior executives
Correct answer: To ensure independent oversight of management by the board
Separating CEO and chair roles prevents concentration of power and ensures the board can independently evaluate and oversee management.
Question 7: Environmental, Social, and Governance (ESG) reporting is primarily designed to:
- Replace traditional financial statements for institutional investors
- Provide stakeholders with transparent information on non-financial performance factors (Correct answer)
- Satisfy only regulatory mandates from the SEC
- Measure only a company's environmental carbon footprint
Correct answer: Provide stakeholders with transparent information on non-financial performance factors
ESG reporting communicates a company's performance across environmental, social, and governance dimensions to help stakeholders assess risk and long-term sustainability.
CCB Business Ethics & Corporate Governance 4
Corporate social responsibility (CSR) initiatives are BEST justified from a governance perspective when they: