CCCP Corporate Governance & Ethical Practices 5 — Questions and Answers
Question 1: Which of the following scenarios MOST likely constitutes a breach of the duty of loyalty?
- A director abstains from a vote on a transaction where the director has a personal financial interest
- A director votes to approve a corporate opportunity that the director secretly intends to pursue personally (Correct answer)
- A director discloses a potential conflict and recuses herself from related discussions
- A director votes against a proposal they believe is not in the company's best interest
Correct answer: A director votes to approve a corporate opportunity that the director secretly intends to pursue personally
Usurping a corporate opportunity for personal gain without disclosure is a classic breach of the duty of loyalty.
Question 2: Under the FCPA, which of the following payments to a foreign government official would MOST likely be permissible?
- A large cash payment to secure a government contract
- A small facilitating payment to expedite a routine customs clearance in a country that allows it (Correct answer)
- A luxury vacation provided to influence a regulatory approval
- Stock options offered to a minister's family member in exchange for favorable treatment
Correct answer: A small facilitating payment to expedite a routine customs clearance in a country that allows it
The FCPA's facilitating payments exception applies to routine, non-discretionary government actions such as processing permits or customs clearances.
Question 3: A board's nominating and governance committee is PRIMARILY responsible for:
- Approving the external auditor engagement letter
- Identifying and recommending qualified board candidates and overseeing governance policies (Correct answer)
- Setting CEO compensation and performance metrics
- Reviewing and approving major capital expenditures
Correct answer: Identifying and recommending qualified board candidates and overseeing governance policies
The nominating and governance committee oversees board composition, director qualifications, and the company's corporate governance framework.
Question 4: A company that learns its supplier uses forced labor in its supply chain should PRIMARILY:
- Continue the relationship until the contract term expires to avoid penalties
- Assess the risk, engage the supplier for remediation, and escalate or exit if unresolved (Correct answer)
- Issue a press release distancing the company from the supplier's practices
- Refer the matter to law enforcement and suspend all internal review
Correct answer: Assess the risk, engage the supplier for remediation, and escalate or exit if unresolved
Best practice under supply chain due diligence frameworks requires risk assessment, supplier engagement for remediation, and escalation or exit if remediation fails.
Question 5: Which governance structure BEST protects minority shareholders in a company with a controlling shareholder?
- A staggered board that limits annual director elections
- Independent directors with authority to review and approve related-party transactions (Correct answer)
- A dual-class share structure that concentrates voting power
- A shareholder rights plan triggered at 10% ownership
Correct answer: Independent directors with authority to review and approve related-party transactions
Independent director oversight of related-party transactions is the primary mechanism to protect minority shareholders from self-dealing by a controlling shareholder.
Question 6: An effective corporate compliance program, as defined by the DOJ's evaluation criteria, must include which element?
- A zero-tolerance policy that mandates termination for any violation, regardless of severity
- Risk assessment processes that periodically evaluate where the program needs to be updated (Correct answer)
- Dedicated compliance staff equal to at least 2% of total workforce headcount
- Board-level approval of every individual compliance training module
Correct answer: Risk assessment processes that periodically evaluate where the program needs to be updated
The DOJ evaluates whether a compliance program is dynamic, including whether companies conduct risk assessments to identify gaps and update their programs accordingly.
Question 7: A director who learns of material non-public information about a competitor during a board meeting should:
- Trade in the competitor's stock before the information becomes public to maximize board returns
- Disclose the information immediately to the company's investors
- Refrain from trading in any security affected by the information and maintain confidentiality (Correct answer)
- Share the information with analysts to ensure market efficiency
Correct answer: Refrain from trading in any security affected by the information and maintain confidentiality
Directors who possess material non-public information are prohibited from trading on it or tipping others under SEC insider trading rules.
CCCP Corporate Governance & Ethical Practices 5
Which of the following scenarios MOST likely constitutes a breach of the duty of loyalty?