Corporate Governance And Ethics 3 â Questions and Answers
Question 1: Under the Foreign Corrupt Practices Act (FCPA), US companies are prohibited from:
- Paying foreign taxes above a certain threshold
- Bribing foreign government officials to obtain or retain business (Correct answer)
- Hiring foreign nationals in subsidiary leadership roles
- Repatriating profits from countries with high corruption indices
Correct answer: Bribing foreign government officials to obtain or retain business
The FCPA prohibits US issuers and domestic concerns from paying bribes to foreign officials for the purpose of obtaining or retaining business.
Question 2: The concept of 'tone at the top' in corporate ethics refers to:
- The pitch and volume of communications in town hall meetings
- Senior leadership's role in modeling and reinforcing ethical behavior throughout the organization (Correct answer)
- The ethical standards required only of board members
- Regulatory directives issued by federal oversight bodies
Correct answer: Senior leadership's role in modeling and reinforcing ethical behavior throughout the organization
Tone at the top describes how senior leaders' behavior and public commitments to ethics shape the ethical culture of the entire organization.
Question 3: A director who has a material financial interest in a contract being considered by the board should MOST appropriately:
- Vote in favor to signal confidence in the deal
- Recuse themselves from the vote and disclose the conflict (Correct answer)
- Abstain only if asked by the CEO
- Request a higher compensation for approving the transaction
Correct answer: Recuse themselves from the vote and disclose the conflict
Directors with conflicts of interest must disclose them and recuse themselves from related votes to protect the integrity of the board decision.
Question 4: Which of the following is a PRIMARY function of an independent audit committee?
- Approving the company's annual dividend policy
- Overseeing financial reporting, internal controls, and the external audit process (Correct answer)
- Setting the company's long-term strategic direction
- Managing day-to-day accounting operations
Correct answer: Overseeing financial reporting, internal controls, and the external audit process
The audit committee oversees financial reporting integrity, internal controls, and the relationship with external auditors to protect shareholders.
Question 5: ESG ratings that differ significantly across rating agencies MOST likely indicate:
- Widespread corporate fraud in ESG disclosures
- Lack of standardized metrics and methodologies across the ESG rating industry (Correct answer)
- Government manipulation of sustainability data
- That ESG is not a meaningful factor in investment analysis
Correct answer: Lack of standardized metrics and methodologies across the ESG rating industry
ESG rating divergence primarily stems from differences in what metrics agencies measure, how they weight factors, and how they source dataânot from fraud.
Question 6: The Sarbanes-Oxley Act Section 302 requires that:
- Executives personally certify the accuracy of financial reports (Correct answer)
- All public companies must adopt a formal code of ethics
- Audit firms rotate every five years
- Board members must hold company stock
Correct answer: Executives personally certify the accuracy of financial reports
SOX Section 302 requires CEOs and CFOs to personally certify that their company's periodic reports fairly present the financial condition of the company.
Question 7: Which stakeholder group is considered a PRIMARY stakeholder in the stakeholder theory of corporate governance?
- The general public
- Future generations
- Employees, customers, suppliers, and shareholders (Correct answer)
- Environmental advocacy groups
Correct answer: Employees, customers, suppliers, and shareholders
Primary stakeholdersâemployees, customers, suppliers, and shareholdersâhave direct, contractual relationships with the firm and are essential to its operation.
Corporate Governance And Ethics 3
Under the Foreign Corrupt Practices Act (FCPA), US companies are prohibited from: