Governance Structures & Ethical Practices Flashcards

What is the key difference between a code of conduct and a code of ethics in corporate governance?

Answer: A code of conduct specifies behavioral rules; a code of ethics articulates core values and principles

A code of conduct provides specific behavioral rules for situations, while a code of ethics articulates the underlying values and principles guiding those rules.

Which governance structure best describes a company where the CEO and board chair roles are held by the same person?

Answer: Combined leadership structure

A combined leadership structure (or CEO duality) occurs when one person holds both the CEO and board chair positions, which critics argue reduces board independence.

What is 'proxy voting' in the context of shareholder governance?

Answer: Shareholders authorizing a representative to vote their shares at a company meeting

Proxy voting allows shareholders to authorize another party to vote their shares at annual or special meetings when they cannot attend in person.

ESG governance requires 'materiality assessments.' Which statement best describes a double materiality assessment?

Answer: Evaluating both how ESG issues affect the company financially and how the company affects society and environment

Double materiality (per EU CSRD) requires companies to assess ESG topics from both an 'impact materiality' perspective (company's effect on the world) and a 'financial materiality' perspective (world's effect on the company).

A company's audit committee discovers management has been selectively disclosing ESG metrics to hide poor performance. This is an example of which unethical practice?

Answer: Greenwashing through omission

Greenwashing through omission occurs when companies deliberately exclude negative ESG data to create a misleadingly positive sustainability image.

What governance mechanism allows shareholders to formally propose changes to corporate policy for a vote at the annual general meeting?

Answer: Shareholder proposal (proxy proposal)

Shareholder proposals (Rule 14a-8 in the US) allow qualifying shareholders to submit resolutions for inclusion in the proxy statement and a vote at the annual meeting.

Which principle from the OECD Corporate Governance Framework addresses the equitable treatment of minority shareholders?

Answer: Equitable treatment of shareholders

The OECD Corporate Governance Principles include a dedicated pillar on equitable treatment of shareholders, including protections for minority and foreign shareholders.