RCMS Ethics & Corporate Governance 4 — Questions and Answers
Question 1: A compliance manager is asked to approve a transaction that benefits a close personal friend but is technically within policy. Which ethical framework best guides the decision to refuse?
- Utilitarianism — maximizing benefit to the most people
- Virtue ethics — acting as a person of good character would act (Correct answer)
- Legal positivism — following the letter of written rules only
- Social contract theory — honoring implicit agreements
Correct answer: Virtue ethics — acting as a person of good character would act
Virtue ethics focuses on character and integrity, guiding professionals to avoid even technically permissible actions that compromise impartiality.
Question 2: Which SEC rule requires public companies to disclose whether they have adopted a code of ethics for senior financial officers?
- Rule 10b-5
- Regulation FD
- Item 406 of Regulation S-K (Correct answer)
- Rule 144A
Correct answer: Item 406 of Regulation S-K
Item 406 of Regulation S-K requires companies to disclose whether they have a code of ethics for their principal executive and financial officers.
Question 3: What does the term 'corporate social responsibility' (CSR) primarily refer to in a governance context?
- A company's legal obligation to pay dividends to shareholders
- Voluntary initiatives to create positive social and environmental impact beyond legal requirements (Correct answer)
- Required disclosures about community investment in SEC filings
- Board committee oversight of charitable donation programs
Correct answer: Voluntary initiatives to create positive social and environmental impact beyond legal requirements
CSR encompasses voluntary corporate actions that address social, environmental, and ethical concerns beyond minimum legal compliance.
Question 4: An ethics hotline report alleges that a VP of Finance manipulates expense reports. Who in the organization is MOST appropriate to lead the investigation?
- The VP's direct supervisor, the CFO
- An independent internal audit team or outside counsel (Correct answer)
- The compliance department manager who received the report
- The board's compensation committee
Correct answer: An independent internal audit team or outside counsel
Investigations involving senior executives should be led by independent internal audit or outside counsel to ensure objectivity and avoid conflicts.
Question 5: The principle of 'materiality' in corporate governance disclosures means that information must be disclosed if:
- It involves any amount over $1,000
- A reasonable investor would consider it important in making an investment decision (Correct answer)
- It was mentioned in a board meeting
- It relates to executive compensation of any kind
Correct answer: A reasonable investor would consider it important in making an investment decision
Materiality is defined by whether a reasonable investor would consider the information significant when making an investment decision.
Question 6: Which governance body is typically responsible for approving an organization's enterprise risk management (ERM) framework?
- The Chief Risk Officer acting independently
- The full Board of Directors or a designated risk committee (Correct answer)
- The external auditor during the annual audit cycle
- The compliance department in coordination with legal
Correct answer: The full Board of Directors or a designated risk committee
The Board of Directors or a board-level risk committee holds ultimate accountability for approving and overseeing the ERM framework.
Question 7: A company establishes a 'speak-up' culture by ensuring employees who report concerns face no adverse employment actions. This policy is best described as:
- A fiduciary duty enhancement
- An anti-retaliation or non-retaliation policy (Correct answer)
- A mandatory arbitration agreement
- A whistleblower award program
Correct answer: An anti-retaliation or non-retaliation policy
A non-retaliation policy protects employees from adverse actions when they report ethics concerns in good faith.
RCMS Ethics & Corporate Governance 4
A compliance manager is asked to approve a transaction that benefits a close personal friend but is technically within policy.
Which ethical framework best guides the decision to refuse?