Corporate Governance Corporate Governance 5

Question 1

What is the primary purpose of a board's 'Risk Committee' in modern corporate governance?

Accepted Answer

To provide board-level oversight of enterprise risk management frameworks and material risks

Answer

A board Risk Committee oversees the company's enterprise risk management (ERM) framework and ensures the board is informed of significant risks to the business.

Question 2

Which governance failure is most commonly associated with the collapse of Enron in 2001?

Accepted Answer

Board members failing to question management's use of off-balance-sheet entities and conflicts of interest

Answer

Enron's board approved special purpose entities that obscured debt and enabled conflicts of interest, representing a fundamental failure of board oversight.

Question 3

Under Delaware law, the duty of loyalty requires that directors:

Accepted Answer

Put the interests of the corporation and shareholders above their own personal interests

Answer

The duty of loyalty requires directors to subordinate their personal interests to those of the corporation and its shareholders, especially in conflict-of-interest situations.

Question 4

A 'golden leash' arrangement in the context of activist investing refers to:

Accepted Answer

An activist investor compensating director nominees separately beyond what the company pays

Answer

A golden leash occurs when an activist investor pays its own director nominees additional compensation, creating potential loyalty to the activist rather than all shareholders.

Question 5

The 'say-on-golden-parachute' vote required by Dodd-Frank applies specifically to:

Accepted Answer

Compensation arrangements triggered by merger or acquisition transactions

Answer

Dodd-Frank requires companies seeking shareholder approval of M&A transactions to disclose and allow a separate advisory shareholder vote on change-in-control compensation arrangements.

Corporate Governance Practice Test

Corporate Governance Practice Test

Corporate Governance Corporate Governance 5