Module 5: Governance Factors Quiz Flashcards
(35 cards)
Quiz #1 No.1
The interests of institutional investors are most likely protected through: 机构投资者的利益最有可能通过以下方式得到保护：
A. pre-emptive rights. 優先購買權。
B. related-party transactions. 關聯方交易。
C. dual-class share structures. 雙層股權結構。
A. pre-emptive rights.
Explanation:
Pre-emptive rights protect institutional investors by giving them the opportunity to maintain their proportional ownership in a company when new shares are issued. These rights ensure that existing shareholders can purchase new shares before they are offered to external investors, preventing dilution of their ownership stake and voting power. 優先認購權保護機構投資者，使他們在公司發行新股時有權維持其在公司中的比例所有權。這些權利確保現有股東可以在新股向外部投資者發售之前購買新股，從而防止其所有權和投票權被稀釋。
Why not the other options?
B. Related-party transactions:
Related-party transactions (RPTs) involve deals between the company and parties with close ties, such as major shareholders or executives. These transactions often raise concerns about conflicts of interest and may harm minority or institutional investors if not properly monitored. RPTs are typically seen as a risk, not a protection mechanism. 關聯方交易（RPT）是指公司與具有密切關係的各方（如主要股東或高管）之間的交易。此類交易往往會引發利益衝突的擔憂，如果監管不當，可能會損害少數股東或機構投資者的利益。關聯方交易通常被視為一種風險，而不是保護機制。
C. Dual-class share structures:
Dual-class share structures create different classes of shares, often granting disproportionate voting power to one class (e.g., founders or insiders). This structure can dilute the influence of institutional investors by concentrating control in the hands of a select group, making it a potential threat to their interests rather than a protection. 雙類股結構會創建不同類別的股份，通常賦予某一類別（例如創始人或內部人士）不成比例的投票權。這種結構會將控制權集中在少數人手中，從而稀釋機構投資者的影響力，對機構投資者的利益構成潛在威脅，而不是保護。
Key Points About Pre-emptive Rights:
They ensure fair treatment of existing shareholders during equity issuance.
Protect against ownership dilution and loss of control.
Align with good governance practices by treating all shareholders equitably.
在股權發行過程中確保對現有股東的公平待遇。
防止股權稀釋和控制權喪失。
通過公平對待所有股東，與良好的公司治理實踐保持一致。
Thus, the interests of institutional investors are most likely protected through pre-emptive rights.
Quiz #1 No.2
Which of the following is specific to general mandate resolutions applying to companies established in Hong Kong SAR? Without seeking shareholders’ consent, a company’s board of directors can decide on additional share issuances of up to:
A. 5% of the shared capital.
B. 10% of the shared capital.
C. 20% of the shared capital.
C. 20% of the shared capital.
Explanation:
In companies established in Hong Kong SAR, general mandate resolutions allow a company’s board of directors to issue additional shares without seeking shareholder consent for up to 20% of the issued share capital. This is a standard practice under the Hong Kong Listing Rules, which permit boards to seek such mandates at annual general meetings. It provides flexibility for companies to raise capital quickly while maintaining compliance with governance requirements.
Why not the other options?
A. 5% of the shared capital:
This figure is incorrect, as the allowable percentage under Hong Kong rules is much higher.
B. 10% of the shared capital:
While 10% is a common threshold in some other jurisdictions, Hong Kong SAR allows a much larger limit under general mandates.
Key Points About General Mandates in Hong Kong SAR:
Standard Limit: Companies can issue up to 20% of their existing share capital without requiring additional shareholder approval.
Shareholder Approval of the Mandate: The general mandate itself must be approved by shareholders at the annual general meeting (AGM). However, once approved, specific share issuance decisions within the limit do not require further shareholder consent.
Flexibility for Companies: This system is designed to provide companies with the ability to raise funds quickly for business expansion or other needs.
Thus, the correct threshold for additional share issuances under general mandate resolutions in Hong Kong SAR is 20% of the share capital.
Quiz #1 No.3
Which of the following is considered a principal committee in place on the boards of most major companies?
A. Risk committee
B. Nominations committee
C. Social and ethics committee
B. Nominations committee.
Explanation:
The nominations committee is considered a principal committee on the boards of most major companies. It is a key component of good corporate governance and is responsible for overseeing board composition, succession planning, and the appointment of directors. Its primary purpose is to ensure that the board has the right mix of skills, diversity, and experience to effectively oversee the company’s management and strategy.
Why not the other options?
A. Risk committee:
While some companies, especially in highly regulated industries (e.g., banking and finance), may have a dedicated risk committee, it is not as universally present as the nominations committee. In many companies, risk oversight is handled by the audit committee rather than a standalone risk committee.
C. Social and ethics committee:
The social and ethics committee is more common in specific jurisdictions (e.g., South Africa, under the Companies Act), but it is not a standard principal committee globally. Its focus is on sustainability, ethics, and social responsibility, but it is not as universally present as the nominations committee.
Principal Committees on Corporate Boards:
The three most common principal committees on corporate boards are:
1. Audit Committee: Oversees financial reporting, internal controls, and compliance.
2. Remuneration (or Compensation) Committee: Manages executive pay and incentives.
3. Nominations Committee: Focuses on board appointments, governance, and succession planning.
These committees are widely adopted across jurisdictions as part of global best practices in corporate governance.
Thus, the nominations committee is the correct answer, as it is a principal committee found on the boards of most major companies.
Quiz #1 No.4
Which executive remuneration concern is most likely expressed by board members?
A. Across the market as a whole, executive pay rates continue to ratchet up.
B. Executive pay does not reflect the market performance of the shares.
C. The executive pay structure does not incentivize executives to deliver maximum value.
C. The executive pay structure does not incentivize executives to deliver maximum value.
Explanation:
Board members are primarily responsible for aligning executive pay structures with the company’s strategic goals and shareholder interests. Their main concern is often whether the pay structure is properly designed to incentivize executives to deliver maximum value for the company and its shareholders. This involves ensuring that compensation plans are tied to performance metrics that reflect long-term value creation, such as profitability, growth, and shareholder returns.
Why not the other options?
A. Across the market as a whole, executive pay rates continue to ratchet up:
This is a broader systemic issue often raised by investors or governance experts. While board members may be aware of market trends, their primary focus is on their own company’s pay practices, not on market-wide concerns.
B. Executive pay does not reflect the market performance of the shares:
This concern is more likely expressed by shareholders or activist investors, especially when executive pay remains high despite poor stock performance. Board members, however, focus on designing pay structures that incentivize overall company performance, not just short-term share price movements.
Key Focus of Board Members:
Boards aim to ensure that executive compensation is aligned with company performance and shareholder interests.
They evaluate whether the pay structure motivates executives to achieve long-term strategic goals, rather than focusing solely on short-term outcomes.
Concerns about misaligned incentives (e.g., excessive bonuses for mediocre performance or lack of long-term incentives) are central to their discussions.
Thus, the executive pay structure not incentivizing executives to deliver maximum value is the concern most likely expressed by board members.
Quiz #1 No.5
The effectiveness of a board chair is best evaluated by:
A. engaging in direct dialogue with directors.
B. referring to a board self-assessment report.
C. assessing the quality of the directors on the board.
B. referring to a board self-assessment report.
Explanation:
The effectiveness of a board chair is best evaluated through a board self-assessment report, which provides structured and comprehensive feedback on the board’s overall performance, including the leadership of the chair. These assessments often include input from board members about the chair’s ability to facilitate effective meetings, promote collaboration, and ensure the board fulfills its governance responsibilities. A self-assessment report offers an objective framework for evaluation, incorporating diverse perspectives.
Why not the other options?
A. Engaging in direct dialogue with directors:
While direct dialogue with directors can yield insights, it is subjective, unstructured, and may not provide a complete or balanced view of the chair’s effectiveness. It is better used as a supplementary method rather than the primary evaluation tool.
C. Assessing the quality of the directors on the board:
The quality of the directors is important for overall board performance but does not directly reflect the effectiveness of the chair. The chair’s role is to facilitate and lead the board, and their effectiveness is separate from the individual quality of the directors.
Key Aspects of a Board Self-Assessment Report:
1.Structured Evaluation: Includes specific questions about the chair’s leadership, ability to manage conflicts, and ensure productive discussions.
2.Comprehensive Feedback: Captures input from all directors, offering a balanced view.
3.Focus on Key Metrics: Evaluates the chair’s ability to promote governance, set the agenda, and foster a collaborative environment.
Thus, the board self-assessment report is the best tool for evaluating the effectiveness of a board chair.
Quiz #1 No.6
The governance analysis of a public equity investment will differ most significantly from that of an investment in:
A. fixed income.
B. sovereign debt.
C. property and infrastructure.
B. sovereign debt.
Explanation:
The governance analysis of a public equity investment differs most significantly from that of sovereign debt because the governance structures and issues are fundamentally different. In public equity investments, governance analysis focuses on corporate governance factors such as board structure, executive compensation, shareholder rights, and transparency. For sovereign debt, governance analysis evaluates the governance of a country, including political stability, rule of law, regulatory quality, and corruption levels.
Why not the other options?
A. Fixed income:
The governance analysis of fixed income investments (e.g., corporate bonds) overlaps significantly with public equity governance analysis, as both assess the governance of a company. Factors such as management quality, financial reporting, and board oversight are relevant to both equity and corporate debt investors.
C. Property and infrastructure:
While governance analysis for property and infrastructure investments may differ in focus (e.g., project-level governance, partnerships, and regulatory compliance), it still retains some similarities with public equity governance, such as evaluating the governance of entities managing the assets.
Key Differences Between Public Equity and Sovereign Debt Governance Analysis:
Focus on Corporate vs. National Governance:
Public equity governance focuses on company-level factors like board independence, shareholder rights, and ESG policies.
Sovereign debt governance focuses on national-level factors like political institutions, fiscal governance, and rule of law.
Stakeholder Relationships:
In public equity, governance analysis examines relationships between the company’s management, board, and shareholders.
In sovereign debt, governance analysis involves evaluating relationships between the government, international institutions, and taxpayers.
Metrics and Indicators:
Public equity analysis uses metrics like board diversity, executive pay, and shareholder activism.
Sovereign debt analysis uses indicators like the Worldwide Governance Indicators (WGI), Corruption Perceptions Index, and political risk assessments.
Thus, the governance analysis of sovereign debt differs the most significantly from that of a public equity investment.
Quiz #1 No.7
Which of the following reflects the role of a sunset clause?
A. Enables minority shareholders to exercise stock warrants
B. Reduces the risk of negative company performance related to dual-class shares
C. Protects company founders from class action lawsuits initiated by activist investors
B. Reduces the risk of negative company performance related to dual-class shares.
Explanation:
A sunset clause in the context of corporate governance refers to a provision that automatically terminates or “sunsets” certain rights or arrangements after a specific period or upon the occurrence of a triggering event. In the case of dual-class shares, sunset clauses are often implemented to ensure that the disproportionate voting rights granted to company founders or insiders are temporary. These clauses are designed to reduce the long-term risks associated with dual-class shares, such as entrenchment of control and misalignment of interests between controlling shareholders and other investors, which can negatively impact company performance.
Why not the other options?
A. Enables minority shareholders to exercise stock warrants:
Sunset clauses are not related to stock warrants or mechanisms for minority shareholders to exercise rights. This is unrelated to the purpose of a sunset clause.
C. Protects company founders from class action lawsuits initiated by activist investors:
A sunset clause does not provide legal protection for founders or shield them from class action lawsuits. Instead, it is designed to limit the control of founders or insiders over time, not protect them.
Key Features of Sunset Clauses in Dual-Class Share Structures:
Time-based expiration: Voting power for dual-class shares is reduced or eliminated after a set number of years (e.g., 5 or 10 years).
Event-based expiration: Triggering events, such as the founder stepping down from an executive role, can end the special voting rights.
Investor protection: Sunset clauses aim to balance the founders’ desire for control with long-term alignment of interests between shareholders and the company.
Thus, the role of a sunset clause is to reduce the risk of negative company performance related to dual-class shares by ensuring that these structures are temporary and do not lead to long-term governance issues.
Quiz #1 No.8
Which element of enhanced auditor reports most likely provides insight into the auditor’s assessment of the company’s financial controls?
A. Key audit matters
B. Scope of the audit
C. Performance materiality number
A. Key audit matters.
Explanation:
Key Audit Matters (KAMs) are a critical component of enhanced auditor reports. They highlight the areas of the financial statements that required significant attention by the auditor, often due to higher risks of material misstatement or significant management judgment. These matters frequently include insights into the auditor’s assessment of financial controls, as the effectiveness of these controls directly impacts areas of significant audit focus.
For example, if the auditor identifies significant risks in revenue recognition or inventory valuation, the discussion of these Key Audit Matters may include commentary on the company’s internal controls over these areas.
Why not the other options?
B. Scope of the audit:
The scope of the audit explains the boundaries of the audit work (e.g., which entities, geographies, or accounts were audited), but it does not specifically provide detailed insights into the auditor’s assessment of financial controls.
C. Performance materiality number:
The performance materiality number represents the threshold the auditor uses to determine what misstatements would be considered material during the audit. While it impacts the overall audit plan, it does not provide specific insights into the company’s financial controls.
Key Points About Key Audit Matters:
Focus on Risk Areas: KAMs often address complex or high-risk areas of the financial statements that rely on financial controls.
Transparency for Stakeholders: They provide stakeholders with a clearer understanding of the auditor’s focus and concerns, including the reliability of financial controls.
Tailored Information: Unlike standardized sections, KAMs are specific to the company and its circumstances, offering deeper insights into governance and control issues.
Thus, Key Audit Matters most likely provide insight into the auditor’s assessment of the company’s financial controls.
Quiz #1 No.9
In the evolution of corporate governance frameworks, which practice developed most recently?
A. Establishment of auditor oversight regulatory bodies
B. Decreasing prominence of combined CEO/chair roles
C. Establishment of, and regularly scheduled meetings of, audit committees
A. Establishment of auditor oversight regulatory bodies.
Explanation:
The establishment of auditor oversight regulatory bodies is the most recent development among the options listed. This practice gained momentum in the early 2000s, primarily as a response to major corporate scandals like Enron and WorldCom, which highlighted weaknesses in financial reporting and auditing oversight. Regulatory bodies like the Public Company Accounting Oversight Board (PCAOB) in the United States were established to improve the quality and reliability of audits and bolster investor confidence.
建立審計監督監管機構是上述選項中最新的發展。這一做法在 21 世紀初開始興起，主要是為了應對安然和世通等重大企業醜聞，這些醜聞凸顯了財務報告和審計監督方面的缺陷。美國公共公司會計監督委員會 （PCAOB） 等監管機構應運而生，旨在提高審計的質量和可靠性，增強投資者的信心。
Why not the other options?
B. Decreasing prominence of combined CEO/chair roles:
The separation of CEO and chair roles began gaining traction as a governance best practice in the 1990s, particularly in the UK and other regions influenced by the Cadbury Report (1992). While this trend continues today, it is not as recent as the establishment of auditor oversight bodies.
C. Establishment of, and regularly scheduled meetings of, audit committees:
Audit committees became a standard corporate governance practice in the 1970s and 1980s, as companies began recognizing the need for independent oversight of financial reporting and internal controls. Their establishment precedes the creation of auditor oversight regulatory bodies.
Key Developments in Corporate Governance Chronology:
1.1970s–1980s: Establishment of audit committees as part of corporate boards to oversee financial reporting and internal controls.
2. 1990s: Focus on board independence and leadership, including the separation of CEO and chair roles (e.g., Cadbury Report in 1992).
3. 2000s: Establishment of auditor oversight regulatory bodies, such as the PCAOB (USA, 2002) and similar entities in other jurisdictions, following high-profile corporate scandals.
Thus, the establishment of auditor oversight regulatory bodies is the most recent development in corporate governance frameworks.
Quiz #1 No.10
Which element of governance most likely has heightened importance in larger companies as opposed to smaller ones?
A. The effective operation of governance processes
B. The quality and thoughtfulness of board members
C. A culture of strong performance without excessive risk taking
A. The effective operation of governance processes.
Explanation:
In larger companies, the effective operation of governance processes is of heightened importance because these organizations are more complex, with diverse operations, stakeholders, and regulatory requirements. Larger companies require formalized and well-structured governance processes to ensure proper oversight, accountability, and decision-making across their broader scope of activities. These processes include mechanisms for risk management, compliance, internal controls, and the delegation of authority, which are critical for managing the scale and complexity of such organizations.
Why not the other options?
B. The quality and thoughtfulness of board members:
While the quality of board members is important for all companies, this factor is not necessarily more important for larger companies than smaller ones. Smaller companies often rely heavily on the expertise and leadership of their board members due to limited resources and less formalized governance systems.
C. A culture of strong performance without excessive risk taking:
A balanced performance culture is crucial for all companies, regardless of size. Although larger companies may face more complex risks, the importance of fostering a strong yet prudent performance culture is equally significant in smaller companies, which may be more vulnerable to the consequences of excessive risk-taking.
Key Reasons Governance Processes Are More Critical for Larger Companies:
Greater Complexity: Larger companies operate in multiple jurisdictions, face varied regulatory requirements, and have more complex organizational structures. Effective governance processes help manage this complexity.
Increased Stakeholder Scrutiny: Larger companies are more visible to regulators, investors, and the public, necessitating robust governance to maintain trust and accountability.
Delegation and Oversight: The scale of operations requires formal processes for delegating authority, monitoring performance, and ensuring compliance across various business units.
Thus, the effective operation of governance processes has heightened importance in larger companies due to their complexity and scale.
Quiz #1 No.11
French and US corporate governance practices are most likely similar with respect to:
A. audit requirements.
B. institutional investor power.
C. board structure and type of chair.
A. audit requirements.
Explanation:
French and US corporate governance practices are most similar in their audit requirements, as both jurisdictions emphasize the importance of robust financial reporting and oversight. In both countries, there are stringent requirements for external audits to ensure the accuracy and reliability of financial statements. Furthermore, both systems mandate the establishment of audit committees to oversee the financial reporting process, internal controls, and the relationship with external auditors.
法國和美國的公司治理實踐在審計要求方面最為相似，因為兩個司法管轄區都強調強健的財務報告和監督的重要性。在兩個國家，對外部審計都有嚴格的要求，以確保財務報表的準確性和可靠性。此外，兩個系統都要求設立審計委員會，以監督財務報告流程、內部控制以及與外部審計師的關係。
Why not the other options?
B. Institutional investor power:
In the US, institutional investors (like pension funds and asset managers) hold significant influence over corporate governance, often pushing for shareholder-focused reforms. In France, however, institutional investors traditionally have less direct power due to the presence of controlling shareholders or government ownership in many companies, which limits the influence of minority or institutional investors.
C. Board structure and type of chair:
The board structures in France and the US differ significantly:
In the US, companies typically have a unitary board structure with a combined CEO-chair role being common (though separating these roles is becoming more prevalent).
Key Similarities in Audit Requirements:
1. Both countries require companies to have an independent external audit of their financial statements.
2.The establishment of an audit committee is mandatory in both jurisdictions, with duties that include monitoring financial reporting and internal controls.
3.Both systems place significant emphasis on the role of auditors in ensuring transparency and protecting shareholder interests.
在美国，公司通常采用单一董事会结构，首席执行官与董事长职位合二为一（尽管将这两个职位分开的情况越来越普遍）。
审计要求的关键相似之处：
1. 两国均要求公司对其财务报表进行独立外部审计。
2. 两国均强制要求设立审计委员会，其职责包括监督财务报告和内部控制。
3. 两国制度均高度重视审计师在确保透明度和保护股东利益方面的作用。
Thus, audit requirements are the area where French and US corporate governance practices are most similar.
Quiz #1 No.12
To reduce its budget deficit, the state, which is the majority shareholder in a large utility company, is requesting the full distribution of the company’s annual profits to shareholders. The company is heavily indebted. Which of the following behaviors would be most appropriate for the independent members of the board of directors?
A. Abstaining from voting on the matter of profits distributed to shareholders
B. Complying with the request of the major shareholder to avoid the rise of agency problems
C. Voting against the request of the major shareholder due to the long-term impact on the company
C. Voting against the request of the major shareholder due to the long-term impact on the company.
Explanation:
The role of independent board members is to act in the best interests of the company and all its shareholders, including minority shareholders, and to ensure the company’s long-term sustainability. In this scenario, distributing the company’s entire annual profits to shareholders, while the company is heavily indebted, could undermine its financial stability and increase the risk of insolvency. Independent directors should prioritize the company’s financial health and long-term viability over the short-term interests of the majority shareholder, even if that shareholder is the state.
Why not the other options?
A. Abstaining from voting on the matter of profits distributed to shareholders:
Abstaining would be an abdication of the independent directors’ fiduciary responsibilities. They are expected to actively engage in decisions that affect the company’s financial health and governance, especially when there are potential conflicts of interest involving the majority shareholder.
B. Complying with the request of the major shareholder to avoid the rise of agency problems:
While avoiding agency problems (conflicts between shareholders and management or between majority and minority shareholders) is important, complying with the state’s request in this case would increase the risk of financial distress and harm the company’s long-term interests. The independent directors’ duty is to all shareholders, not just the majority shareholder.
Key Responsibilities of Independent Directors in This Context:
Act in the Best Interests of the Company: Independent directors must prioritize the company’s long-term financial stability and sustainability over short-term demands from the majority shareholder.
Protect Minority Shareholders: Ensuring that the actions of the majority shareholder do not disproportionately harm minority shareholders is a fundamental governance responsibility.
Promote Financial Prudence: Given the company’s high levels of debt, distributing all profits could worsen its financial position, increase borrowing costs, and jeopardize its ability to invest in future growth or meet obligations.
Conclusion:
Voting against the majority shareholder’s request is the most appropriate course of action for independent directors in this situation, as it aligns with their duty to protect the company’s long-term interests and financial health.
Quiz #2 No.1
Which of the following scandals did not motivate the creation of the first corporate governance code?
A. Polly Peck
B. Enron
C. Caparo
B. Enron
Explanation:
The first corporate governance code, the Cadbury Report (1992), was motivated by scandals such as Polly Peck and Caparo, which occurred in the UK during the late 1980s and early 1990s. These scandals highlighted issues of financial mismanagement, lack of accountability, and poor corporate governance practices.
Enron, on the other hand, was a major corporate scandal in the United States that occurred in 2001, nearly a decade after the Cadbury Report was published. It did not contribute to the creation of the first corporate governance code but rather influenced subsequent governance reforms, such as the Sarbanes-Oxley Act of 2002 in the US.
Quiz #2 No.2
According to the ICGN’s Global Governance Principles, which of the following would raise questions about the independence of a member of the board of directors? The director:
根據 ICGN 的《全球治理原則》，以下哪項會對董事會成員的獨立性提出質疑？該董事：
A. has been a member of the board for the last 3 years.
B. acted as the company’s executive before joining the board of directors.
C. has over 10 years of experience with one of the company’s competitors.
B. acted as the company’s executive before joining the board of directors.
Explanation:
According to the ICGN’s Global Governance Principles, the independence of a director may be questioned if they have recently held an executive position within the company. This is because their prior role as an executive could compromise their ability to act independently, as they might have existing relationships or loyalties within the company.
根據 ICGN 的全球治理原則，如果董事最近曾在公司擔任過執行職務，則其獨立性可能會受到質疑。這是因為他們以前擔任的執行職務可能會影響其獨立行事的能力，因為他們可能與公司存在現有的關係或忠誠度。
Here’s a breakdown of the options:
A. has been a member of the board for the last 3 years: This does not inherently raise concerns about independence, as a 3-year tenure is relatively short and does not suggest undue influence or entrenchment. 在過去 3 年中一直擔任董事會成員：這並不必然引起對獨立性的擔憂，因為 3 年的任期相對較短，並不表明存在不當影響或固守職位的情況。
B. acted as the company’s executive before joining the board of directors: This raises concerns about independence, as former executives may struggle to objectively oversee the management team they were previously part of.在加入董事會之前曾擔任公司高管：這會引起人們對獨立性的擔憂，因為前高管可能難以客觀地監督他們之前曾參與的管理團隊。
C. has over 10 years of experience with one of the company’s competitors: This does not necessarily compromise independence. In fact, experience with competitors could bring valuable external insights, provided there are no conflicts of interest or confidentiality concerns.在公司的一家競爭對手公司擁有超過 10 年的工作經驗：這並不一定會影響獨立性。事實上，只要沒有利益衝突或保密問題，在競爭對手公司的工作經驗可以帶來寶貴的外部見解。
Thus, B is the correct choice as it directly aligns with concerns about maintaining a truly independent board of directors.
Quiz #2 No.3
The responsibility for fairly reporting a company’s financial position lies with the company’s:
A. external auditor.
B. audit committee.
C. board of directors.
C. board of directors.
Explanation:
The board of directors holds the ultimate responsibility for ensuring that a company’s financial position is fairly reported. They oversee the integrity of financial reporting and ensure that management follows appropriate accounting standards and practices. This includes reviewing and approving financial statements and ensuring proper internal controls are in place.
Here’s a breakdown of the options:
A. external auditor: The external auditor’s role is to provide an independent opinion on the financial statements prepared by the company, ensuring they are free from material misstatements. However, the primary responsibility for the accuracy of the financial reporting lies with the company, not the auditor.
B. audit committee: The audit committee, a subset of the board, assists in overseeing the financial reporting process, internal controls, and the work of the external auditor. However, it operates under the board’s authority and does not bear the ultimate responsibility.
C. board of directors: The board has the fiduciary duty to ensure that the company’s financial reports are accurate and fairly represent its financial position. This is a core aspect of their governance responsibilities.
Thus, the board of directors carries the ultimate responsibility for the fair reporting of the company’s financial position.
Quiz #2 No.
A company in the oil and gas industry has 7 members on the board of directors with the following sets of skills and experience:
Skills and Experience Number of Members with the Skill and Expertise
Oil and gas 4 members
Finance expertise 3 members
International business 3 members
Strategic planning 3 members
Audit and control 2 members
Public policy expertise 2 members
ESG issues related to oil and gas 1 member
To improve the structure of the board of directors, the company should seek to:
A. have all members of the board knowledgeable in the oil and gas industry.
B. have a balanced number of members of the board for each set of skills.
C. hire another board member with expertise in ESG issues related to the oil and gas industry.
C. hire another board member with expertise in ESG issues related to the oil and gas industry.
Explanation:
The board of directors should have a diverse and balanced set of skills and expertise to effectively oversee the company’s operations, strategy, and risks. In this case, the company operates in the oil and gas industry, where Environmental, Social, and Governance (ESG) issues are increasingly critical due to growing regulatory, reputational, and sustainability pressures.
Currently, the board has only one member with ESG expertise, which is insufficient given the industry’s heightened focus on environmental and social responsibilities. Adding another board member with expertise in ESG issues would improve the board’s ability to address these critical challenges and align with evolving stakeholder expectations.
Here’s why the other options are less appropriate:
A. have all members of the board knowledgeable in the oil and gas industry: While having industry expertise is important, boards also need diversity in perspectives and skills, such as finance, international business, and ESG, to address a wide range of strategic and operational challenges. Overloading the board with industry experts could lead to groupthink and insufficient focus on areas like governance and sustainability.
B. have a balanced number of members of the board for each set of skills: This is impractical, as certain skills (e.g., oil and gas, finance, strategic planning) may naturally have more representation based on the company’s needs. Instead of equal representation, the board should prioritize filling gaps in critical areas, such as ESG expertise in this case.
C. hire another board member with expertise in ESG issues related to the oil and gas industry: This is the best option because ESG issues are a major concern for oil and gas companies, and increasing expertise in this area will strengthen the board’s ability to address sustainability challenges and stakeholder concerns.
Thus, hiring another member with ESG expertise would improve the board’s structure and its ability to respond to key industry-specific risks and opportunities.
Quiz #2 No.5
What are the “two A’s” that lie at the heart of corporate governance?
A. Advocacy and alignment
B. Accountability and advocacy
C. Accountability and alignment
C. Accountability and alignment
Explanation:
The “two A’s” at the heart of corporate governance are accountability and alignment, which are critical principles for maintaining effective governance in an organization.
Accountability:
Corporate governance ensures that the board of directors, executives, and management are held accountable for their actions and decisions to shareholders, stakeholders, and the organization as a whole. This principle is vital for maintaining trust, transparency, and ethical conduct in business operations.
Alignment:
Alignment refers to aligning the interests of the board, management, and shareholders, ensuring that everyone works toward the same strategic and financial goals. Proper alignment reduces conflicts of interest and ensures that decisions are made in the best interest of the company and its stakeholders.
Why the other options are incorrect:
A. Advocacy and alignment: Advocacy is not a core principle of corporate governance. While alignment is important, advocacy does not directly address the governance principles of oversight and responsibility.
B. Accountability and advocacy: Advocacy is not central to corporate governance. Accountability, however, is one of the core principles.
Thus, accountability and alignment are the two foundational pillars of corporate governance, ensuring transparency, responsibility, and the alignment of stakeholder interests.
Quiz #2 No.6
Which of the following phrases is commonly used to describe the model created by the Cadbury Code for adherence to its principles?
A. If not, why not?
B. Apply and explain.
C. Comply or explain.
C. Comply or explain.
Explanation:
The Cadbury Code (1992), which was one of the first corporate governance codes, introduced the principle of “comply or explain” to encourage adherence to its guidelines. This approach allows companies to either:
《吉百利准则》（1992）是首批公司治理准则之一，引入了「遵守或解释」原则，以鼓励遵守其准则。该方法允许公司采取以下两种做法：
Comply: Follow the governance principles outlined in the code.
Explain: Provide a reasonable explanation for why they have chosen not to comply with certain provisions.
This model provides flexibility, recognizing that a “one-size-fits-all” approach may not be suitable for all companies, while still promoting transparency and accountability in corporate governance.
遵守：遵守守則中概述的治理原則。
解釋：提供未遵守某些規定的合理解釋。
該模式具有靈活性，承認「一刀切」的方法可能並不適合所有公司，同時仍促進公司治理的透明度和問責制。
Why the other options are incorrect:
A. If not, why not?: This phrase is associated with governance models in some other jurisdictions (e.g., Australia), but it is not the phrase used in the Cadbury Code.
B. Apply and explain: This phrase is used in some modern governance codes as a variation of “comply or explain” but was not part of the original Cadbury Code model.
Thus, “comply or explain” is the phrase most commonly associated with the Cadbury Code’s governance model.
Quiz #2 No.7
Which of the following does not typically raise questions regarding an individual director’s independence?
以下哪一项通常不会引发对个别董事独立性的质疑？
A. A recent senior role as an adviser to the company
最近担任公司高级顾问一职
B. Receiving share options in the company as part of an incentive scheme
作为激励计划的一部分，获得公司股票期权
C. Not having been on the board long enough to fully understand the business
由於加入董事會時間不長，尚未完全了解業務情況
C. Not having been on the board long enough to fully understand the business
Explanation:
A director’s independence is primarily assessed based on factors that could impair their ability to make objective and unbiased decisions. Lack of tenure or insufficient familiarity with the business (as in option C) does not typically raise concerns about independence. Instead, it may indicate a need for more experience or orientation but does not inherently compromise the director’s impartiality.
董事的獨立性主要根據可能影響其做出客觀、公正決策的能力的因素來評估。缺乏任期或對業務不熟悉（如選項 C）通常不會引起對獨立性的擔憂。相反，這可能表明需要更多經驗或指導，但並不必然影響董事的公正性。
Here’s a breakdown of the options:
A. A recent senior role as an adviser to the company: This raises questions about independence as the director may have pre-existing relationships or loyalties that could affect their objectivity.
B. Receiving share options in the company as part of an incentive scheme: This can compromise independence because share options create a financial interest tied to the company’s performance, potentially aligning the director’s decisions with personal gain rather than the broader interests of shareholders.
作为激励计划的一部分获得公司股票期权：这可能会损害独立性，因为股票期权会产生与公司业绩挂钩的财务利益，可能使董事的决策与个人利益相一致，而不是与股东的整体利益相一致。
C. Not having been on the board long enough to fully understand the business: While this may affect the director’s effectiveness in the short term, it does not compromise their independence. Independence is about the ability to make impartial decisions free from conflicts of interest, not the director’s level of experience or understanding of the business.
Thus, C does not typically raise questions about a director’s independence.
Quiz #2 No.8
Which element of executive pay is most likely to include some metric based on ESG performance?
A. Salary
B. Annual bonus
C. Long-term incentive or share scheme
C. Long-term incentive or share scheme
Explanation:
Long-term incentive plans (LTIPs) or share schemes are most likely to include metrics based on Environmental, Social, and Governance (ESG) performance. This is because ESG goals are typically long-term in nature (e.g., reducing carbon emissions, improving diversity, or enhancing sustainability practices), and aligning them with long-term incentives ensures that executives remain focused on these strategic objectives over an extended period.
長期激勵計劃（LTIP）或股票計劃最有可能包含基於環境、社會和治理（ESG）績效的指標。這是因為 ESG 目標通常具有長期性（例如減少碳排放、提高多樣性或增強可持續性實踐），將其與長期激勵措施掛鉤可確保高管在較長時期內保持對這些戰略目標的關注。
Why the other options are less appropriate:
A. Salary: A fixed salary is not tied to performance metrics, whether financial or ESG-related. It is a base component of executive pay and does not vary based on performance.
B. Annual bonus: While annual bonuses can include some short-term ESG metrics (e.g., meeting safety or compliance targets), they are primarily focused on achieving short-term financial and operational goals. ESG metrics are generally more strategic and long-term, making them less suitable for annual bonuses.
C. Long-term incentive or share scheme: These are specifically designed to align executive rewards with the long-term success and sustainability of the company. Including ESG metrics in LTIPs reflects the growing emphasis on integrating ESG factors into corporate strategy and performance evaluation.
Thus, long-term incentive plans or share schemes are the most appropriate element of executive pay to include ESG performance metrics.
Quiz #2 No.9
Which of the following is not a board committee expected to be established at all companies?
A. Audit
B. Risk
C. Remuneration
B. Risk
Explanation:
While audit and remuneration committees are considered essential for all companies, the establishment of a risk committee is not universally required. In many companies, especially smaller ones, the oversight of risk is typically handled by the audit committee or the board as a whole, rather than through a separate risk committee.
Why the other options are required:
A. Audit: The audit committee is essential in ensuring the integrity of financial reporting, overseeing internal controls, and liaising with external auditors. It is a key requirement in corporate governance standards globally.
C. Remuneration: The remuneration committee is responsible for setting executive pay and aligning it with company performance and shareholder interests. This is a standard requirement to ensure transparency and avoid conflicts of interest in executive compensation.
B. Risk: While some large or complex organizations (e.g., financial institutions) may establish a separate risk committee to focus on risk management, this is not a mandatory requirement for all companies. The audit committee often takes on the responsibility for overseeing risk in most organizations.
Conclusion:
The risk committee is not universally expected to be established at all companies, making it the correct answer.
Quiz #2 No.10
Which of the following is least likely to explain why the role of the chair of a company board is so important?
以下哪项最不可能解释公司董事会主席的角色为何如此重要？
A. The chair sets the agenda for board discussions.
主席制定董事會討論的議程。
B. The chair helps ensure that all directors make their full contribution.
主席協助確保所有董事充分發表意見。
C. The chair will usually also be the CEO.
主席通常也是首席執行官。
C. The chair will usually also be the CEO.
Explanation:
In good corporate governance practices, the roles of the chair and the CEO are typically separated to ensure there is a clear distinction between the management of the company (led by the CEO) and the oversight of the company (led by the chair). Combining these roles can create conflicts of interest and reduce the board’s independence, which is why having the chair also act as CEO is discouraged in most corporate governance codes (e.g., the UK Corporate Governance Code and the Cadbury Report).
在良好的公司治理實踐中，主席和首席執行官的角色通常是分開的，以確保公司管理（由首席執行官領導）與公司監督（由主席領導）之間有明確的區分。將這些角色合併可能會造成利益衝突，並降低董事會的獨立性，因此大多數公司治理準則（例如英國公司治理準則和卡迪夫報告）都不鼓勵主席兼任首席執行官。
Why the other options are correct:
A. The chair sets the agenda for board discussions: This is a crucial responsibility of the chair, as they ensure that the board focuses on the most important strategic issues and operates effectively.
B. The chair helps ensure that all directors make their full contribution: The chair facilitates discussions and ensures that all board members participate actively, fostering diverse viewpoints and robust decision-making.
Conclusion:
The statement “The chair will usually also be the CEO” is incorrect and highlights a governance practice that is increasingly rare and discouraged. Therefore, it is the least likely to explain why the role of the chair is so important.
Quiz #2 No.11
One difference between the corporate governance practices in Japan and those in Germany relates to the: 日本和德国的公司治理实践的一个区别在于：
A. prevalence of single-tier versus two-tier boards.
单层董事会与双层董事会的普及程度。
B. requirement for appointing independent audit firms.
C. dominance of major shareholders in leading companies.
A. prevalence of single-tier versus two-tier boards.
Explanation:
One of the key differences between corporate governance practices in Japan and Germany is the board structure:
日本和德國公司治理實踐的一個主要區別在於董事會結構：
Germany: German companies typically use a two-tier board system, which separates the supervisory board (responsible for oversight and governance) from the management board (responsible for day-to-day operations). This structure is designed to ensure a clear distinction between management and oversight. 德國：德國公司通常採用兩層董事會制度，將監督委員會（負責監督和治理）與管理委員會（負責日常運營）分開。這種結構旨在確保管理與監督之間的明確區分。
Japan: Japanese companies traditionally use a single-tier board system, where a single board of directors is responsible for both management and oversight. However, Japan has been introducing reforms to improve corporate governance, such as increasing the number of independent directors, but the single-tier system remains prevalent.
日本：日本公司传统上采用单层董事会制度，由一个董事会负责管理和监督。然而，日本一直在进行改革以改善公司治理，例如增加独立董事的人数，但单层制度仍然占主导地位。
Why the other options are incorrect:
B. requirement for appointing independent audit firms: Both Japan and Germany require independent audit firms to ensure the integrity of financial reporting. This is not a major distinguishing factor between the two corporate governance systems.
C. dominance of major shareholders in leading companies: While major shareholders (e.g., families, banks, or keiretsu in Japan) can influence governance in both countries, this is not a primary difference between their governance structures. Both countries exhibit some level of shareholder influence, but the board structure is the more significant distinction.
Conclusion:
The difference in board structures—single-tier in Japan and two-tier in Germany—is a key distinction in corporate governance practices, making A the correct answer.
Quiz #2 No.12
In line with best global corporate governance practices, which of the following committees could consist of both independent and non-independent members?
A. Audit committee
B. Nominations committee
C. Remuneration committee
B. Nominations committee
Explanation:
According to best global corporate governance practices, such as those outlined in the UK Corporate Governance Code, nominations committees can include both independent and non-independent members. The nominations committee is responsible for identifying and recommending candidates for board appointments and ensuring the board has the right balance of skills, experience, and diversity. While it is often chaired by the board chair, who is not always independent, the majority of members are typically independent directors.
Why the other options are incorrect:
A. Audit committee: Best practices require the audit committee to consist entirely of independent members. This ensures that the committee can provide unbiased oversight of the company’s financial reporting, internal controls, and relationships with external auditors.
C. Remuneration committee: Similarly, the remuneration committee is expected to consist entirely of independent members to avoid conflicts of interest when determining executive pay. This ensures that decisions are made objectively and align with shareholder interests.
Conclusion:
The nominations committee is the only committee that may include both independent and non-independent members, making B the correct answer.
