CEA Corporate Governance & Compliance 4 — Questions and Answers
Question 1: Which of the following is an example of a 'tone at the top' failure in corporate governance?
- An employee mistakenly misclassifies an expense report
- Senior executives publicly dismiss ethics policies as unnecessary bureaucracy (Correct answer)
- A new employee is unaware of the company's code of conduct
- The compliance budget is reduced due to economic pressures
Correct answer: Senior executives publicly dismiss ethics policies as unnecessary bureaucracy
When senior leaders undermine or dismiss ethics policies, it signals to employees that compliance is not truly valued, eroding the ethical culture from the top down.
Question 2: What is the purpose of a 'conflict of interest' disclosure policy?
- To prevent employees from working for competitors after leaving the company
- To identify situations where personal interests may improperly influence business decisions (Correct answer)
- To ban all outside employment for company employees
- To ensure executives own stock in the company they manage
Correct answer: To identify situations where personal interests may improperly influence business decisions
Conflict of interest disclosure policies require employees and directors to reveal personal relationships or financial interests that could bias their professional decisions.
Question 3: Under NYSE listing standards, which committee must be composed entirely of independent directors?
- Executive Committee
- Audit Committee (Correct answer)
- Finance Committee
- Strategy Committee
Correct answer: Audit Committee
NYSE listing standards require the Audit Committee to be composed entirely of independent directors to ensure unbiased financial oversight.
Question 4: A compliance training program is MOST likely to change employee behavior when it:
- Is completed once during onboarding and archived
- Uses scenario-based learning tied to real workplace situations (Correct answer)
- Focuses exclusively on legal penalties for non-compliance
- Is delivered by an external vendor rather than internal staff
Correct answer: Uses scenario-based learning tied to real workplace situations
Scenario-based training that mirrors real workplace dilemmas helps employees recognize and respond to ethical issues they are likely to encounter.
Question 5: What is the significance of the 'business judgment rule' in corporate governance?
- It allows regulators to override board decisions on strategic matters
- It protects directors from liability for informed, good-faith business decisions (Correct answer)
- It requires directors to seek shareholder approval for all major decisions
- It mandates that board decisions be reviewed annually by external auditors
Correct answer: It protects directors from liability for informed, good-faith business decisions
The business judgment rule is a legal presumption that protects directors from personal liability when they make informed, disinterested decisions in good faith for the benefit of the corporation.
Question 6: Which of the following scenarios would most likely constitute insider trading?
- A CEO sells company stock after the company's 10-K is publicly filed
- An analyst buys stock based on information learned from public earnings calls
- A director sells shares using a pre-established 10b5-1 trading plan
- An employee buys stock after learning of an unannounced merger from a colleague (Correct answer)
Correct answer: An employee buys stock after learning of an unannounced merger from a colleague
Trading on material non-public information obtained through a breach of duty, such as learning of a merger before public announcement, constitutes insider trading.
Question 7: What does an effective anti-money laundering (AML) compliance program typically include as a core component?
- Quarterly audits of all employee personal bank accounts
- Customer due diligence and Know Your Customer (KYC) procedures (Correct answer)
- Prohibition on all cash transactions over any amount
- Mandatory reporting of all foreign currency transactions to OFAC
Correct answer: Customer due diligence and Know Your Customer (KYC) procedures
KYC and customer due diligence procedures help financial institutions verify the identity and assess the risk profile of clients to detect and prevent money laundering.
CEA Corporate Governance & Compliance 4
Which of the following is an example of a 'tone at the top' failure in corporate governance?