Corporate Governance & Ethical Practices Flashcards

A board director who serves simultaneously on the audit committee and is a former CFO of the company is BEST described as having a potential:

Answer: Independence conflict

Former executives serving on audit committees raise independence concerns under SEC and stock exchange rules.

Under the business judgment rule, courts will generally defer to board decisions when directors acted with:

Answer: Due care, good faith, and in the honest belief they served the corporation

The business judgment rule protects directors who act in good faith, with due care, and in the honest belief the action serves the company.

Which governance mechanism MOST directly aligns executive compensation with long-term shareholder value?

Answer: Equity vesting schedules with multi-year cliff periods

Multi-year equity vesting ties executive wealth to sustained stock performance, aligning incentives with long-term shareholder value.

A company's code of conduct is MOST effective when it:

Answer: Is communicated, trained, and enforced consistently at all levels

A code of conduct must be consistently communicated, trained, and enforced to drive actual behavioral change.

The 'tone at the top' concept in corporate governance primarily refers to:

Answer: Senior leadership's visible commitment to ethical conduct and compliance

Tone at the top reflects the ethical culture set by senior leaders through their words, actions, and decision-making priorities.

Which of the following BEST describes a 'say-on-pay' vote under the Dodd-Frank Act?

Answer: A non-binding advisory vote by shareholders on executive compensation

Say-on-pay votes are advisory and non-binding, though negative results typically prompt boards to engage with shareholders on compensation concerns.

When a board committee conducts an internal investigation into alleged misconduct by the CEO, it should FIRST:

Answer: Retain independent outside counsel not connected to management

Independent outside counsel ensures the investigation is free from management influence and protects attorney-client privilege for the board.