CCB Business Ethics & Corporate Governance 5 — Questions and Answers
Question 1: A vendor offers a compliance manager an all-expenses-paid trip to a resort in exchange for recommending their software to the procurement committee. This is best described as:
- A legitimate business development expense
- A quid pro quo bribe that violates ethical and likely legal standards (Correct answer)
- An acceptable perk if disclosed in the manager's annual review
- A conflict of interest only if the software is ultimately purchased
Correct answer: A quid pro quo bribe that violates ethical and likely legal standards
Accepting valuable benefits in exchange for business recommendations constitutes a bribe and violates ethical standards regardless of whether the recommendation is made.
Question 2: Which of the following scenarios represents a 'related-party transaction' that requires board scrutiny?
- A company purchases office supplies from a national retailer
- The CEO's spouse's firm is awarded a major consulting contract (Correct answer)
- A company hires 50 new employees during peak season
- The CFO presents quarterly earnings to analysts
Correct answer: The CEO's spouse's firm is awarded a major consulting contract
Related-party transactions involve dealings between the company and insiders or their associates, creating conflicts of interest that demand independent board review.
Question 3: The Sarbanes-Oxley Act Section 302 requires that:
- External auditors certify the accuracy of all financial filings
- CEOs and CFOs personally certify the accuracy of financial reports and the effectiveness of internal controls (Correct answer)
- Audit committees consist entirely of independent directors
- Companies rotate external audit firms every five years
Correct answer: CEOs and CFOs personally certify the accuracy of financial reports and the effectiveness of internal controls
SOX Section 302 mandates that the principal executive and financial officers personally certify the accuracy of periodic financial reports and internal control disclosures.
Question 4: A company discovers its third-party supplier uses child labor, which is legal in the supplier's country but violates the company's supplier code of conduct. The ethical response is to:
- Continue the relationship since the practice is legal locally
- Terminate the contract immediately without providing any notice
- Engage the supplier with a remediation plan and defined timeline, with termination if compliance fails (Correct answer)
- Disclose the issue only in internal risk assessments
Correct answer: Engage the supplier with a remediation plan and defined timeline, with termination if compliance fails
Ethical supply chain management requires companies to enforce their standards through structured remediation while holding suppliers accountable, balancing impact on workers with upholding principles.
Question 5: Which of the following best defines 'fiduciary duty' as it applies to corporate directors?
- A legal obligation to maximize short-term quarterly earnings
- A duty of care and loyalty requiring directors to act in the best interests of the corporation and its shareholders (Correct answer)
- An obligation to disclose all company information to the public immediately
- A contractual requirement to attend all scheduled board meetings
Correct answer: A duty of care and loyalty requiring directors to act in the best interests of the corporation and its shareholders
Fiduciary duty encompasses the duty of care (act with informed diligence) and duty of loyalty (prioritize the corporation's interests over personal interests).
Question 6: A company's general counsel learns of potential securities fraud by the CFO. After raising the issue internally without result, under SEC rules the attorney must:
- Immediately resign to avoid professional liability
- Report the evidence to the SEC's Office of the General Counsel
- Continue raising the issue internally, including to the audit committee or full board (Correct answer)
- Maintain attorney-client privilege and take no further action
Correct answer: Continue raising the issue internally, including to the audit committee or full board
SEC Rule 205 requires attorneys who discover material securities violations to report up the corporate ladder, including to the audit committee or board if management fails to act.
Question 7: The concept of 'greenwashing' in the context of business ethics refers to:
- Using green-colored branding on environmentally compliant products
- Making misleading claims about the environmental benefits of products or practices to appear more sustainable (Correct answer)
- Obtaining green building certifications for corporate headquarters
- Hiring external consultants to conduct environmental audits
Correct answer: Making misleading claims about the environmental benefits of products or practices to appear more sustainable
Greenwashing involves companies overstating or fabricating environmental credentials to exploit consumer and investor interest in sustainability without genuine action.
CCB Business Ethics & Corporate Governance 5
A vendor offers a compliance manager an all-expenses-paid trip to a resort in exchange for recommending their software to the procurement committee.
This is best described as: