Corporate Governance Flashcards

Which board committee is primarily responsible for overseeing the internal audit function and financial reporting integrity?

Answer: Audit committee

The audit committee oversees internal audit, external audit relationships, and financial reporting to ensure integrity.

Under the Sarbanes-Oxley Act, the CEO and CFO must certify financial statements under which section?

Answer: Section 302

Section 302 of SOX requires the CEO and CFO to personally certify the accuracy of financial reports.

A 'say-on-pay' vote allows shareholders to express their opinion on which corporate matter?

Answer: Executive compensation packages

Say-on-pay votes are non-binding shareholder votes on executive compensation arrangements.

Which concept describes the separation of the roles of board chair and chief executive officer?

Answer: Leadership separation

Leadership separation (splitting the chair and CEO roles) is considered a best practice for strengthening board oversight.

The 'business judgment rule' protects directors from liability when they:

Answer: Act on informed, good-faith business decisions

The business judgment rule shields directors who act in good faith, on an informed basis, and in the honest belief that the action is in the best interest of the company.

Which governance mechanism best addresses the principal-agent problem between shareholders and management?

Answer: Aligning executive pay with long-term shareholder value

Equity-based compensation and long-term incentives align management interests with shareholder interests, mitigating the principal-agent conflict.

A 'poison pill' defense mechanism is designed to protect a company against:

Answer: Hostile takeover attempts

A poison pill (shareholder rights plan) dilutes a hostile acquirer's stake, making a takeover prohibitively expensive.