CCCP Corporate Governance & Ethical Practices 4 â Questions and Answers
Question 1: Which of the following is an example of a 'related-party transaction' that requires board disclosure?
- A director voting on a merger that benefits all shareholders equally
- A company purchasing services from a firm owned by the CEO's spouse (Correct answer)
- An executive exercising stock options at the market price
- The board approving the annual compliance budget
Correct answer: A company purchasing services from a firm owned by the CEO's spouse
Transactions between a company and entities connected to its insiders are related-party transactions requiring disclosure and independent approval.
Question 2: A 'poison pill' shareholder rights plan is PRIMARILY used to:
- Penalize shareholders who vote against management proposals
- Dilute a hostile acquirer's stake to make a takeover prohibitively expensive (Correct answer)
- Limit insider trading by triggering automatic share sales
- Require majority shareholder approval before any executive is hired
Correct answer: Dilute a hostile acquirer's stake to make a takeover prohibitively expensive
Poison pills trigger the right to buy additional shares at a discount if any party acquires a threshold stake, making hostile takeovers more costly.
Question 3: ESG reporting standards are MOST important for corporate governance because they:
- Replace financial disclosures required by the SEC
- Allow companies to ignore environmental regulations with board approval
- Provide investors with material non-financial information to assess long-term risk (Correct answer)
- Are legally binding on all US public companies under GAAP
Correct answer: Provide investors with material non-financial information to assess long-term risk
ESG disclosures give investors insight into environmental, social, and governance risks that may materially affect long-term corporate performance.
Question 4: The 'duty of care' requires corporate directors to:
- Make decisions that guarantee a positive financial outcome for shareholders
- Act with the care an ordinarily prudent person would exercise in a similar position (Correct answer)
- Obtain personal liability insurance before voting on major transactions
- Consult shareholders before approving any expenditure over $1 million
Correct answer: Act with the care an ordinarily prudent person would exercise in a similar position
The duty of care requires directors to be informed, deliberate, and attentiveâexercising the judgment of a reasonably prudent person.
Question 5: Which of the following is a key characteristic of an 'independent' board director under NYSE listing standards?
- Has served on the board for at least five consecutive years
- Has no material relationship with the company that could affect independent judgment (Correct answer)
- Holds at least 1% of the company's outstanding shares
- Is appointed by institutional investors rather than management
Correct answer: Has no material relationship with the company that could affect independent judgment
NYSE standards require that independent directors have no material relationshipsâfinancial, familial, or professionalâthat could compromise their objectivity.
Question 6: A company's whistleblower protection policy should prohibit which of the following?
- Reporting compliance concerns to external regulators
- Any form of retaliation against employees who report in good faith (Correct answer)
- Anonymous submissions to the ethics hotline
- Reporting concerns about a direct supervisor
Correct answer: Any form of retaliation against employees who report in good faith
Anti-retaliation protections are legally required under Dodd-Frank and SOX and are the cornerstone of effective whistleblower programs.
Question 7: When evaluating a potential conflict of interest, a compliance professional should FIRST:
- Assume bad intent and recommend immediate termination
- Identify whether a personal interest could improperly influence a business decision (Correct answer)
- Refer the matter to external counsel without internal review
- Issue a company-wide policy update to address the specific situation
Correct answer: Identify whether a personal interest could improperly influence a business decision
Conflict-of-interest analysis begins by determining whether a personal interest exists that couldâeven if it hasn'tâimproperly influence a business judgment.
CCCP Corporate Governance & Ethical Practices 4
Which of the following is an example of a 'related-party transaction' that requires board disclosure?