Lecture 8

Question 1

Standard 6

Answer 1

Conflicts of Interest

Question 2

Standard 6 (A)

Answer 2

Avoid or Disclose conflicts

Question 3

Avoid or disclose conflicts meaning

Answer 3

Must make full disclosure of any conflict of interest

Question 4

Causes of conflicts of interest

Answer 4

Self interest
Fraud
Misunderstanding
Slippery Slope

Question 5

Misunderstanding (Conflict of interest)

Answer 5

Everyone is doing is, therefore, must be normal or acceptable

Question 6

Slippery Slope (Conflict of interest)

Answer 6

Small favours lead to a need for payback

Question 7

Types of conflicts of interest

Answer 7

Apparent
Potential
Actual

Question 8

Apparent conflict of interest

Answer 8

People have an apparent conflict due to position/responsibility but it doesn’t mean that they are acting for personal benefit

Question 9

Potential conflict of interest

Answer 9

Judgment may appear less reliable due to biases

Question 10

Actual conflict of interest

Answer 10

Acts of self-interest over those of the client

Question 11

Ways to manage conflict of interest

Answer 11

Avoid
Disclose
Report

Question 12

Standard 6 (B)

Answer 12

Priority of Transactions

Question 13

Priority of transactions meaning

Answer 13

1) Client
2) Employer
3) Employee

Question 14

True or False - In all cases, the client’s interest come first.

Answer 14

True

Question 15

Standard 6 (C)

Answer 15

Referral Fees

Question 16

Referral Fees meaning

Answer 16

Must disclose any compensation or benefits received from products/services to employers and clients

Question 17

Family Accounts

Answer 17

No preferential treatment should be given to family members that are clients

Question 18

Standard 7

Answer 18

Responsibilities as a CFA Member

Question 19

Standard 7 (A)

Answer 19

Conduct as a participant in CFA institute

Question 20

Conduct as participants in CFA institute programs meaning

Answer 20

As a CFA members, must avoid any behavior that tarnishes the reputation of CFA

Question 21

Standard 7 (B)

Answer 21

Reference to CFA

Question 22

Reference to CFA

Answer 22

Members must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute

Question 23

Staggered Board

Answer 23

Board that is divided into classes and only one class of directors is eligible for elections

Question 24

Inside Directors

Answer 24

Directors who are management

Question 25

Outside Directors

Answer 25

Directors that have no affiliation with management

Question 26

Grey Directors

Answer 26

Directors who aren’t execs but have ties to execs

Question 27

Professional Directors

Answer 27

Retired individuals but are still board directors

Question 28

Compensation Committee

Answer 28

Board committee that sets the compensation for CEO and other execs

Question 29

Audit Committee

Answer 29

In charge of hiring external auditor and overseeing the internal audit controls of the firm

Question 30

Nominating Committee

Answer 30

Board committee that nominates new directors to the board

Question 31

Entrenched

Answer 31

Directors and execs that become secure enough that they do not fear being replaced even if they do a poor job

Question 32

Incumbents

Answer 32

Non-management directors and execs that the board nominates for re-election

Question 33

Proxy fight

Answer 33

Fight over the proxies to elect directors

Question 34

Dissident

Answer 34

Shareholder(s) that criticize current slate of director nominees and offers an alternative slate

Question 35

Activist Shareholder

Answer 35

Shareholders who pressure the firm to change strategy and corporate governance practices in order to increase investment returns

Question 36

Clawback Provisions

Answer 36

Compensation must be returned if it was based on faulty financial reports

Question 37

Golden parachute

Answer 37

Large compensation amount given to executives should the executive be dismissed due to a takeover or merger

Question 38

Golden handcuffs

Answer 38

Incentives given to discourage resignation

Question 39

Golden coffins

Answer 39

Generous death benefits given to top execs