CCM Corporate Governance and Ethical Standards 2 — Questions and Answers
Question 1: Which board committee is primarily responsible for overseeing financial reporting integrity and external auditor relationships?
- Compensation Committee
- Audit Committee (Correct answer)
- Nominating Committee
- Risk Committee
Correct answer: Audit Committee
The Audit Committee oversees financial reporting, internal controls, and the relationship with external auditors.
Question 2: Under the Sarbanes-Oxley Act, what is the maximum prison term for securities fraud?
- 5 years
- 10 years
- 20 years (Correct answer)
- 25 years
Correct answer: 20 years
SOX Section 1348 establishes a maximum 20-year prison sentence for securities fraud.
Question 3: What governance principle requires that board members act in the best interests of shareholders rather than personal gain?
- Duty of Obedience
- Duty of Loyalty (Correct answer)
- Duty of Care
- Duty of Disclosure
Correct answer: Duty of Loyalty
The Duty of Loyalty requires directors to prioritize shareholder interests over personal interests and avoid conflicts.
Question 4: A company's code of conduct should be reviewed and updated at minimum how often according to best practices?
- Every 5 years
- Every 3 years
- Annually (Correct answer)
- Only when laws change
Correct answer: Annually
Best practice is annual review of the code of conduct to ensure alignment with current laws, regulations, and business practices.
Question 5: Which governance structure separates the roles of CEO and Board Chair to reduce concentration of power?
- Unitary board structure
- Dual-board structure
- Lead director model
- Non-executive chair model (Correct answer)
Correct answer: Non-executive chair model
A non-executive (independent) chair model separates leadership of the board from management, reducing power concentration.
Question 6: What term describes the process by which shareholders elect directors and vote on major corporate decisions?
- Proxy governance
- Corporate democracy
- Shareholder franchise (Correct answer)
- Stakeholder engagement
Correct answer: Shareholder franchise
The shareholder franchise refers to shareholders' right to vote on corporate matters, including director elections.
Question 7: An employee discovers the CFO is manipulating earnings reports. The MOST appropriate first action under an ethical framework is to:
- Resign immediately to avoid liability
- Report directly to the SEC
- Report through the internal escalation or hotline process (Correct answer)
- Confront the CFO directly
Correct answer: Report through the internal escalation or hotline process
Internal escalation channels, such as ethics hotlines or audit committees, should typically be used first before external reporting.
CCM Corporate Governance and Ethical Standards 2
Which board committee is primarily responsible for overseeing financial reporting integrity and external auditor relationships?