CCT Ethics & Corporate Governance 4 — Questions and Answers
Question 1: A board's nominating committee fails to assess diversity when recruiting new directors. Which governance best practice is being neglected?
- Board composition and diversity oversight (Correct answer)
- Succession planning for executives
- Executive compensation benchmarking
- Shareholder engagement policy
Correct answer: Board composition and diversity oversight
Nominating committees are expected under corporate governance best practices and SEC disclosure rules to consider diversity of skills, backgrounds, and perspectives when evaluating director candidates.
Question 2: Which scenario best illustrates a 'tone at the top' failure in corporate governance?
- Senior executives routinely override expense approval controls (Correct answer)
- A front-line employee submits a fraudulent reimbursement claim
- The compliance department fails to update its policy manual
- A vendor delivers goods late without penalty
Correct answer: Senior executives routinely override expense approval controls
Tone at the top refers to leadership's demonstrated commitment to ethical conduct; executives who override controls signal that rules do not apply to them, undermining the entire compliance culture.
Question 3: Under the Telephone Consumer Protection Act (TCPA), which practice requires prior express written consent?
- Sending marketing text messages using an autodialer (Correct answer)
- Sending a transactional email confirmation
- Making a manually dialed call to a business landline
- Mailing a physical marketing brochure
Correct answer: Sending marketing text messages using an autodialer
The TCPA requires prior express written consent before sending marketing texts or calls using an automatic telephone dialing system to cell phones.
Question 4: An ethics hotline report alleges that a compliance manager is retaliating against a whistleblower. Who should ideally investigate this complaint?
- An independent third party or internal audit reporting to the audit committee (Correct answer)
- The compliance manager's direct supervisor
- The compliance department itself
- The company's external public relations firm
Correct answer: An independent third party or internal audit reporting to the audit committee
When the accused is within the compliance function, the investigation must bypass that function and be conducted by an independent party reporting to the audit committee to preserve objectivity.
Question 5: Which of the following is an example of insider trading based on the 'misappropriation theory'?
- A financial journalist trades on material nonpublic information learned during news gathering (Correct answer)
- A CEO sells stock after the company announces earnings
- A director buys stock 30 days before a scheduled earnings call
- An employee exercises vested options under a 10b5-1 plan
Correct answer: A financial journalist trades on material nonpublic information learned during news gathering
The misappropriation theory extends insider trading liability to outsiders who trade on material nonpublic information in breach of a duty owed to the information source, such as an employer.
Question 6: A compliance officer is pressured by the CFO to ignore a red flag in the company's expense reporting. Applying the 'reasonable person' standard, the compliance officer should:
- Escalate the concern through appropriate channels despite the pressure (Correct answer)
- Defer to the CFO's judgment as a senior officer
- Document the concern privately and take no further action
- Immediately report to the SEC without internal escalation
Correct answer: Escalate the concern through appropriate channels despite the pressure
A reasonable compliance officer would escalate the concern to the audit committee or board, not yield to inappropriate pressure from management.
Question 7: Which international standard provides a framework for anti-bribery management systems that organizations can certify against?
- ISO 37001 (Correct answer)
- ISO 27001
- ISO 9001
- COSO ERM
Correct answer: ISO 37001
ISO 37001 is the international standard specifically designed to help organizations establish, implement, and certify an anti-bribery management system.
CCT Ethics & Corporate Governance 4
A board's nominating committee fails to assess diversity when recruiting new directors.
Which governance best practice is being neglected?