CEA Corporate Governance & Compliance 5 — Questions and Answers
Question 1: A company operating in multiple countries adopts a single global code of ethics. What is the PRIMARY challenge this approach presents?
- Global codes are prohibited under U.S. securities law
- Local legal requirements or cultural norms may conflict with the global standard (Correct answer)
- Employees in foreign countries cannot be held to U.S. ethical standards
- Global codes require annual shareholder approval in every jurisdiction
Correct answer: Local legal requirements or cultural norms may conflict with the global standard
While a uniform global code promotes consistency, it may conflict with local laws, customs, or business practices, requiring careful adaptation or supplemental local policies.
Question 2: Which of the following BEST describes a 'dual-class share structure' and its governance implication?
- Two separate boards for domestic and international operations
- A share structure where some shares carry more voting rights than others, concentrating control (Correct answer)
- A compensation plan that issues two classes of stock options to executives
- A regulatory requirement to maintain both common and preferred shares
Correct answer: A share structure where some shares carry more voting rights than others, concentrating control
Dual-class share structures allow founders or insiders to retain voting control even as they sell economic interests, raising concerns about accountability to ordinary shareholders.
Question 3: Which of the following actions would most likely violate the anti-retaliation provisions of the Dodd-Frank Act?
- Demoting an employee who consistently misses performance targets
- Terminating an employee who reported potential securities violations to the SEC (Correct answer)
- Transferring an employee to a different department after a team restructuring
- Denying a raise to an employee whose department failed to meet budget goals
Correct answer: Terminating an employee who reported potential securities violations to the SEC
Dodd-Frank explicitly prohibits employers from retaliating against employees who report potential securities law violations to the SEC.
Question 4: What is the role of a company's General Counsel in relation to the compliance function?
- The General Counsel always serves as the Chief Compliance Officer by default
- The General Counsel provides legal advice but the CCO independently manages compliance (Correct answer)
- The General Counsel overrides compliance decisions to minimize litigation risk
- The General Counsel reports compliance matters directly to external regulators
Correct answer: The General Counsel provides legal advice but the CCO independently manages compliance
In many organizations, the General Counsel and Chief Compliance Officer are separate roles; legal counsel advises on law while the CCO manages the compliance program independently.
Question 5: A board of directors adopts a 'majority voting' standard for director elections. What does this mean?
- The majority shareholder can unilaterally appoint any director
- A director must receive more votes 'for' than 'against' to be elected or re-elected (Correct answer)
- Board decisions require approval from more than half of all issued shares
- Directors are elected only after approval by a majority of independent board members
Correct answer: A director must receive more votes 'for' than 'against' to be elected or re-elected
Under majority voting, a director must receive more 'for' votes than 'withheld' or 'against' votes to be elected, giving shareholders more meaningful influence over board composition.
Question 6: Which of the following is a PRIMARY indicator that a company has an effective compliance culture rather than merely a compliance program?
- The company has a lengthy, detailed employee handbook
- Employees proactively raise ethical concerns and seek guidance before acting (Correct answer)
- The company has not been investigated by any regulator in five years
- The compliance department has a large budget and headcount
Correct answer: Employees proactively raise ethical concerns and seek guidance before acting
A genuine compliance culture is evidenced by employees voluntarily raising concerns and seeking ethical guidance, indicating that ethics is internalized rather than externally imposed.
Question 7: Under the COSO Internal Control – Integrated Framework, which of the following is NOT one of the five components of internal control?
- Control Environment
- Risk Assessment
- Stakeholder Engagement (Correct answer)
- Monitoring Activities
Correct answer: Stakeholder Engagement
The five COSO components are Control Environment, Risk Assessment, Control Activities, Information & Communication, and Monitoring Activities — Stakeholder Engagement is not one of them.
CEA Corporate Governance & Compliance 5
A company operating in multiple countries adopts a single global code of ethics.
What is the PRIMARY challenge this approach presents?