CME Professional Ethics & Governance 3 — Questions and Answers
Question 1: A manager receives a gift valued at $250 from a vendor currently under contract review. The company policy prohibits gifts over $50. The manager should:
- Keep the gift since it was unsolicited and returning it might offend the vendor
- Return the gift and report the incident to compliance as required by policy (Correct answer)
- Donate the gift to charity to neutralize any conflict
- Accept the gift but disclose it informally to a supervisor
Correct answer: Return the gift and report the incident to compliance as required by policy
Company policy must be followed; the gift must be returned and reported through the proper compliance channel regardless of intent.
Question 2: The Sarbanes-Oxley Act (SOX) Section 302 requires which of the following?
- External auditors to rotate every five years
- CEOs and CFOs to personally certify the accuracy of financial reports (Correct answer)
- All public companies to maintain a fully independent board
- Whistleblower reports to be submitted directly to the SEC
Correct answer: CEOs and CFOs to personally certify the accuracy of financial reports
SOX Section 302 mandates that principal executive and financial officers personally certify the accuracy of their company's periodic financial reports.
Question 3: An employee reports suspected fraud internally but is then demoted. This action by the employer most likely violates:
- The duty of care standard under common law
- Whistleblower protection provisions of Dodd-Frank or SOX (Correct answer)
- The Foreign Corrupt Practices Act
- SEC Regulation FD on fair disclosure
Correct answer: Whistleblower protection provisions of Dodd-Frank or SOX
Retaliation against employees who report suspected fraud is prohibited by whistleblower protection laws including SOX and Dodd-Frank.
Question 4: In the context of board governance, 'independent director' means a director who:
- Owns the largest block of company shares
- Has no material relationship with the company that could compromise judgment (Correct answer)
- Was elected by employee shareholders rather than institutional investors
- Has served on the board for fewer than three years
Correct answer: Has no material relationship with the company that could compromise judgment
An independent director is free from any financial or personal ties to the company that could bias their oversight role.
Question 5: Which ethical framework judges the rightness of an action based solely on its outcomes and overall welfare produced?
- Deontological ethics
- Virtue ethics
- Consequentialism (Utilitarianism) (Correct answer)
- Social contract theory
Correct answer: Consequentialism (Utilitarianism)
Consequentialism evaluates actions by their results — the action producing the greatest good for the greatest number is morally correct.
Question 6: A CEO instructs staff to backdate stock option grants to increase their value. This practice is PRIMARILY a violation of:
- Anti-bribery statutes under the FCPA
- Securities fraud and accurate record-keeping requirements (Correct answer)
- OSHA workplace safety regulations
- Antitrust laws prohibiting price-fixing
Correct answer: Securities fraud and accurate record-keeping requirements
Backdating stock options to a lower-price date falsifies financial records and constitutes securities fraud.
Question 7: Environmental, Social, and Governance (ESG) reporting is BEST described as:
- A mandatory SEC requirement for all public companies since 2010
- Voluntary or regulated disclosure of non-financial factors affecting long-term organizational value (Correct answer)
- A replacement for traditional financial auditing standards
- An internal HR framework for managing diversity programs
Correct answer: Voluntary or regulated disclosure of non-financial factors affecting long-term organizational value
ESG reporting discloses environmental, social, and governance performance data that investors and stakeholders use to assess long-term risk and value.
CME Professional Ethics & Governance 3
A manager receives a gift valued at $250 from a vendor currently under contract review.
The company policy prohibits gifts over $50.
The manager should: