Corporate Governance Board of Directors & Committees 1 — Questions and Answers
Question 1: What is the primary fiduciary duty of a corporate board of directors?
- To act in the best interests of shareholders (Correct answer)
- To maximize executive compensation
- To reduce the company's tax burden
- To expand the company's market share
Correct answer: To act in the best interests of shareholders
Board members owe a fiduciary duty to act in the best interests of shareholders, including duties of care and loyalty.
Question 2: Which committee is primarily responsible for overseeing financial reporting and internal controls?
- Compensation Committee
- Audit Committee (Correct answer)
- Nominating Committee
- Executive Committee
Correct answer: Audit Committee
The Audit Committee oversees financial reporting integrity, internal controls, and the independent auditor relationship.
Question 3: Under the Sarbanes-Oxley Act, how many members of the audit committee must be 'financial experts'?
- All members
- At least one (Correct answer)
- At least two
- A majority
Correct answer: At least one
SOX Section 407 requires companies to disclose whether at least one audit committee member qualifies as a financial expert.
Question 4: What is a 'staggered board' in corporate governance?
- A board where only a fraction of directors are elected each year (Correct answer)
- A board with an equal number of inside and outside directors
- A board that meets on alternating quarters
- A board where the CEO also serves as chair
Correct answer: A board where only a fraction of directors are elected each year
A staggered (or classified) board divides directors into classes elected in different years, making hostile takeovers more difficult.
Question 5: Which NYSE listing standard requires that a majority of board members be independent directors?
- NYSE Rule 303A.01 (Correct answer)
- NYSE Rule 402.05
- NYSE Rule 312.03
- NYSE Rule 501.01
Correct answer: NYSE Rule 303A.01
NYSE Listed Company Manual Rule 303A.01 requires that a majority of the board consist of independent directors.
Question 6: What does the 'business judgment rule' protect in US corporate law?
- Directors from personal liability when making informed, good-faith business decisions (Correct answer)
- Shareholders from dilution during secondary offerings
- Auditors from liability for undetected fraud
- Executives from clawback provisions
Correct answer: Directors from personal liability when making informed, good-faith business decisions
The business judgment rule presumes directors act on an informed, good-faith basis, shielding them from personal liability for honest mistakes.
Corporate Governance Board of Directors & Committees 1
What is the primary fiduciary duty of a corporate board of directors?