CEA Corporate Governance & Compliance 2 — Questions and Answers
Question 1: Which board committee is primarily responsible for overseeing a company's financial reporting and internal controls?
- Compensation Committee
- Audit Committee (Correct answer)
- Nominating Committee
- Risk Committee
Correct answer: Audit Committee
The Audit Committee oversees financial reporting integrity, internal controls, and the external audit process.
Question 2: A publicly traded U.S. company must disclose material information to all investors simultaneously under which regulation?
- Sarbanes-Oxley Act Section 302
- Regulation Fair Disclosure (Reg FD) (Correct answer)
- Dodd-Frank Act Section 954
- SEC Rule 10b-5
Correct answer: Regulation Fair Disclosure (Reg FD)
Regulation Fair Disclosure (Reg FD) requires companies to disclose material information to all investors at the same time, preventing selective disclosure.
Question 3: What is 'say on pay' as established by the Dodd-Frank Act?
- A requirement for CEOs to set their own compensation
- A shareholder advisory vote on executive compensation (Correct answer)
- A board mandate to align pay with industry benchmarks
- A government cap on executive salary levels
Correct answer: A shareholder advisory vote on executive compensation
'Say on pay' gives shareholders a non-binding advisory vote on executive compensation packages at least once every three years.
Question 4: Under the Foreign Corrupt Practices Act (FCPA), which of the following is a recognized exception to the anti-bribery provisions?
- Payments made to foreign officials for personal gifts under $50
- Facilitating payments to expedite routine governmental actions (Correct answer)
- Charitable donations made on behalf of a foreign official
- Payments approved by a company's ethics committee
Correct answer: Facilitating payments to expedite routine governmental actions
The FCPA includes a narrow exception for facilitating or 'grease' payments made to expedite routine non-discretionary government actions such as processing permits.
Question 5: Which principle requires that board directors avoid situations where their personal interests conflict with the interests of the corporation?
- Duty of Obedience
- Duty of Care
- Duty of Loyalty (Correct answer)
- Duty of Disclosure
Correct answer: Duty of Loyalty
The Duty of Loyalty requires directors to prioritize the corporation's interests over their own personal or financial interests.
Question 6: A company's Code of Conduct is MOST effective when it is:
- Written by legal counsel and distributed annually
- Enforced consistently regardless of an employee's seniority (Correct answer)
- Approved by shareholders at the annual meeting
- Reviewed only when regulatory changes occur
Correct answer: Enforced consistently regardless of an employee's seniority
Consistent enforcement at all levels, including senior management, is critical to a Code of Conduct's credibility and effectiveness.
Question 7: Which governance mechanism is designed to align the long-term interests of executives with those of shareholders?
- Fixed annual salary increases
- Performance-based equity compensation (Correct answer)
- Guaranteed severance packages
- Expense account privileges
Correct answer: Performance-based equity compensation
Performance-based equity compensation, such as stock options or restricted stock units tied to company performance, aligns executive incentives with shareholder value creation.
CEA Corporate Governance & Compliance 2
Which board committee is primarily responsible for overseeing a company's financial reporting and internal controls?