Corporate Governance And Ethics 2 — Questions and Answers
Question 1: Which ethical theory holds that the morality of an action is determined solely by its consequences or outcomes?
- Deontological ethics
- Consequentialism (Correct answer)
- Virtue ethics
- Social contract theory
Correct answer: Consequentialism
Consequentialism judges actions based on their outcomes, with utilitarianism being its most common corporate application.
Question 2: A company's code of ethics is MOST effective when it is:
- Distributed only to senior management
- Written by outside legal counsel alone
- Embedded in hiring, training, and performance evaluations (Correct answer)
- Kept confidential to prevent competitor copying
Correct answer: Embedded in hiring, training, and performance evaluations
Codes of ethics gain real effectiveness when integrated into organizational processes like hiring, training, and performance reviews rather than existing as standalone documents.
Question 3: The 'business judgment rule' protects directors who make decisions that later prove harmful if the directors:
- Acted in good faith with adequate information and no conflict of interest (Correct answer)
- Consulted only internal counsel before deciding
- Obtained unanimous board approval
- Disclosed the decision to shareholders in advance
Correct answer: Acted in good faith with adequate information and no conflict of interest
The business judgment rule shields directors from liability when they act in good faith, on an informed basis, and without personal financial interest in the outcome.
Question 4: Which governance mechanism is MOST directly responsible for setting executive compensation?
- Full board of directors
- Audit committee
- Compensation committee (Correct answer)
- Nominating and governance committee
Correct answer: Compensation committee
The compensation committee, typically composed of independent directors, is responsible for designing and approving executive pay packages.
Question 5: An ethics hotline (whistleblower line) is PRIMARILY intended to:
- Replace the internal audit function
- Allow employees to report misconduct anonymously without fear of retaliation (Correct answer)
- Collect employee grievances about working conditions
- Satisfy OSHA safety reporting requirements
Correct answer: Allow employees to report misconduct anonymously without fear of retaliation
Ethics hotlines provide a confidential channel for employees to report suspected violations of law or policy without risk of retaliation.
Question 6: Dual-class share structures raise ethical concerns primarily because they:
- Reduce dividend payments to common shareholders
- Allow founders to retain voting control disproportionate to economic ownership (Correct answer)
- Increase the company's tax liability
- Make it harder to list on stock exchanges
Correct answer: Allow founders to retain voting control disproportionate to economic ownership
Dual-class structures give certain shareholders (often founders) outsized voting power relative to their economic stake, undermining the principle of one share, one vote.
Question 7: Which of the following BEST describes 'greenwashing' from a corporate ethics perspective?
- Using sustainable materials in all product packaging
- Misrepresenting or exaggerating a company's environmental practices to appear more eco-friendly (Correct answer)
- Publishing an annual sustainability report verified by a third party
- Setting science-based emissions reduction targets
Correct answer: Misrepresenting or exaggerating a company's environmental practices to appear more eco-friendly
Greenwashing involves making misleading claims about environmental benefits to deceive consumers and investors, constituting a form of fraud.
Corporate Governance And Ethics 2
Which ethical theory holds that the morality of an action is determined solely by its consequences or outcomes?