CCT Ethics & Corporate Governance 2 — Questions and Answers
Question 1: A compliance officer discovers that the CEO approved a transaction that personally benefited the CEO's spouse. Which governance concept is most directly implicated?
- Duty of loyalty conflict of interest (Correct answer)
- Business judgment rule violation
- Sarbanes-Oxley disclosure failure
- Whistleblower retaliation
Correct answer: Duty of loyalty conflict of interest
A duty of loyalty conflict of interest arises when a director or officer acts in a way that benefits themselves or related parties rather than the corporation.
Question 2: Under the Foreign Corrupt Practices Act (FCPA), which of the following is NOT considered a 'foreign official'?
- A private company employee with no government ties (Correct answer)
- An officer of a state-owned enterprise
- A political party official
- A candidate for foreign office
Correct answer: A private company employee with no government ties
The FCPA defines foreign officials as government employees, state-owned enterprise officers, and political party officials, but not employees of purely private companies.
Question 3: Which governance structure element is primarily responsible for overseeing the independence of the external auditor?
- Audit committee (Correct answer)
- Compensation committee
- Nominating committee
- Risk committee
Correct answer: Audit committee
The audit committee is charged with selecting, overseeing, and ensuring the independence of the external auditor under SEC rules and listing standards.
Question 4: A company's code of ethics requires employees to report suspected fraud. An employee who remains silent to protect a colleague is most likely violating which principle?
- Duty to report (Correct answer)
- Confidentiality obligation
- Conflict of interest policy
- Anti-retaliation provision
Correct answer: Duty to report
Codes of ethics typically impose a mandatory duty to report suspected misconduct, and silence in the face of known fraud violates that obligation.
Question 5: The 'three lines of defense' model assigns internal audit to which line?
- Third line (Correct answer)
- First line
- Second line
- Fourth line
Correct answer: Third line
Internal audit serves as the third line of defense by providing independent assurance over the effectiveness of the first and second lines.
Question 6: Which Dodd-Frank provision most directly incentivizes employees to report securities law violations to the SEC?
- Whistleblower award program (Correct answer)
- Clawback provision
- Say-on-pay vote
- Proxy access rule
Correct answer: Whistleblower award program
Dodd-Frank's whistleblower award program offers monetary rewards of 10–30% of sanctions exceeding $1 million to individuals who report securities violations to the SEC.
Question 7: When assessing whether a board director is 'independent' under NYSE listing standards, which relationship would disqualify independence?
- Former employee of the company within the last three years (Correct answer)
- Ownership of 2% of the company's stock
- Service on another public company's board
- Membership in the same professional association as the CEO
Correct answer: Former employee of the company within the last three years
NYSE standards disqualify directors who were employees of the listed company within the preceding three years from being classified as independent.
CCT Ethics & Corporate Governance 2
A compliance officer discovers that the CEO approved a transaction that personally benefited the CEO's spouse.
Which governance concept is most directly implicated?